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Full text of "North Carolina Register v.5 no. 5 (6/1/1990)"

-XT _ ^3r K'-i^J) 



/. 



RECEfVLD 



SAW LIbrtAKY 



NORTH CAROLINA 

REGISTER 



IN THIS ISSUE 



^^■ 



EXECUTIVE ORDERS 
FINAL DECISION LETTER 

PROPOSED RULES 

Cosmetic Art Examiners, Board of 
Economic and Community Development 
Electrical Contractors, Board of Examiners 
Environment, Health, and Natural Resources 
Human Resources 
Insurance 
Public Education 
State Treasurer 

FINAL RULES 
Revenue 

ISSUE DATE: JUNE 1 , 1 990 

Volume 5 • Issue 5 • Pages 313-407 



INFORMATION ABOUT THE NORTH CAROLINA REGISTER AND ADMINISTRATIVE CODE 



NORTH CAROLINA REGISTER 

The North Carolina Register is published bi-monthly 
and contains information relating to agency, executive, 
legislative and judicial actions required by or affecting 
Chapter 150B of the General Statutes. All proposed, ad- 
ministrative rules and amendments filed under Chapter 
150B must be published in the Register. The Register 
will t\picall\ comprise appro.ximately fift>- pages per 
issue of legal text. 

State law requires that a copy of each issue be pro- 
vided free of charge to each county in the state and to 
various state officials and institutions. The Xorth Carolina 
Register is available by yearly subscription at a cost of 
one hundred and fi\e dollars (S105.00) for 24 issues. 

Requests for subscriptions to the North CaroUna 
Register should be directed to the Office of Ad- 
ministrative Hearings, P. 0. Drawer 1 1666, Raleigh, N. 
C. 27604, Attn: Subscriptions. 

ADOPTION, AMENDMENT, AND REPEAL OF 
RULES 

An agency intending to adopt, amend, or repeal a rule 
must first publish notice of the proposed action in the 
North Carolina Register. The notice must include the 
time and place of the public hearing; a statement of how 
public comments may be submitted to the agency either 
at the hearing or otherwise; the text of the proposed 
rule or amendment; a reference to the Statutory 
Authority for the action and the proposed effective date. 

The Director of the Office of Administrati\e Hearings 
has authority to publish a summary, rather than the 
full text, of any amendment which is considered to be 
too lengthy. In such case, the full text of the rule con- 
taining the proposed amendment will be available for 
public inspection at the Rules Di\ision of the Office of 
Administrati\e Hearings and at the office of the pro- 
mulgating agency. 

Unless a specific statute provides otherwise, at least 
30 days must elapse following publication of the pro- 
posal in the Nortli Caroli)ia Register before the agency 
may conduct the required public hearing and take ac- 
tion on the proposed adoption, amendment or repeal. 

When final action is taken, the promulgating agency 
must file an>' adopted or amended rule for appro\aI by 
the Administrati\e Rules Re\iew Commission. Upon ap- 
proval of ARRC, the adopted or amended rule must be 
filed with the Office of Administrative Hearings. If it 
differs substantially from the proposed form published 
as part of the public notice, upon request by the agen- 
cy, the adopted \'ersion will again be published in the 
North Carolina Register. 

A rule, or amended rule cannot become effecti\e 
earlier than the first day of the second calendar month 
after the adoption is filed with the Office of Ad- 
ministrative Hearings for publication in the NCAC. 

Proposed action on rules may be withdrawn by the 
promulgating agency at any time before final action is 
taken b>' the agency. 

TEMPORARY RULES 

Under certain conditions of an emergency nature, 
some agencies may issue temporary rules. A temporary- 
rule becomes effecti\e when adopted and remains in 



effect for the period specified in the rule or 180 days, 
whiche\er is less. An agency adopting a temporary rule 
must begin normal rule-making procedures on the per- 
manent rule at the same time the temporary rule is 
adopted. 

NORTH CAROLINA ADMINISTRATIVE CODE 

The North Carolina Administrati\e Code (NCAC) is 
a compilation and index of the administrative rules of 
25 state agencies and 38 occupational licensing boards. 
The NCAC comprises approximateh' 15,000 letter size, 
single spaced pages of material of which approximate- 
Iv 35 "'0 is changed annuallv. Compilation and publica- 
tion of the NCAC is mandated by G.S. 150B-63(b). 

The Code is di\'ided into Titles and Chapters. Each 
state agency is assigned a separate title which is fur- 
ther broken down by chapters. Title 21 is designated 
for occupational licensing boards. 

The NCAC is a\ailable in two formats. 

(1) Single pages may be obtained at a minimum 
cost of two dollars and 50 cents (S2.50) for 10 
pages or less, plus fifteen cents ($0.15) per each 
additional page. 

(2) The full publication consists of 52 \olumes, 
totaling in excess of 15,000 pages. It is sup- 
plemented monthK' with replacement pages. A 
one year subscription to the full publication in- 
cluding supplements can be purchased for 
seven hundred and fifty dollars (S750.00). In- 
di\idual \olumes may also be purchased with 
supplement ser\ice. Renewal subscriptions for 
supplements to the initial publication available. 

Requests for pages of rules or volumes of the NCAC 
should be directed to the Office of Administrative 
Hearings. 

NOTE 

The foregoing is a generalized statement of the pro- 
cedures to be followed. For specific statutory' language, 
it is suggested that Articles 2 and 5 of Chapter 150B of 
the General Statutes be examined carefulh'. 

CITATION TO THE NORTH CAROLINA 
REGISTER 

The North Carolina Register is cited bv volume, issue, 
page number and date. 1:1 NCR 101-201, April 1, 1986 

refers to Volume 1, Issue 1, pages 101 through 201 of 
the North Carolina Register issued on April 1, 1986. 



North Carolina Register. Published bi-monthly by 
the Office of Administrative Hearings, P.O. Drawer 
1 1666, Raleigh, North Carolina 27604, pursuant to 
Chapter 150B of the General Statutes. Subscriptions 
one hundred and five dollars (SI 05.00) per year. 
North Carolina Administrative Code. Published 
in looseleaf notebooks with supplement service by 
the Office of Administrative Hearings, P.O. 
Drawer 1 1666, Raleigh, North Carolina 27604, pur- 
suant to Chapter 150B of the General Satutes. 
Subscriptions seven hundred and fifty dollars 
($750.00). Individual volumes available. 



NORTH 
CAROLINA 
REGISTER 



ISSUE CONTENTS 



I. EXECurrv E orders 

Executive Orders 111-113. 



.313 




OJJice of Administrative Hearings 

P. (). Drawer 11666 

Raleii;h, AC 276114 

(919) 733- 2678 



Julian .Mann 111, 

Director 
James R. Scarcella Sr., 

Deputy Director 
Molly Masich, 

Director /IP A Services 



Staff: 

Ruby Creech, 

Publications Coordinator 
Teresa Kilpatrick, 

Editor id! .Issislant 
Jean Shirley, 

Editorial Assistant 



IE EINAE DECISION EETIER 

Voting Rights Act 316 

III. PROPOSED Rl EES 

Economic and Community 
Development 

Community Assistance 

Division 317 

Credit Union 

Division 317 

Environment, Health, and 
Natural Re.sources 
Wildlife Resources 

Commission 349 

Human Resources 
Mental Health, De\clopmental 

Disabilities and .Substance 

Abuse Ser\ices 318 

Insurance 

Agent .Serx'ices Di\ision 321 

I'inancial l'\aIuation 

Di\ision 342 

rirc and Casualty 

Di\ision 335 

I_icensin<^ Boards 
Board of Cosmetic Art 

I; xaminers 355 

Board of E.\aminers of 

lilectrical Contractors 356 

Public Education 

I'lcmcntaPv' and Secondary' 351 

State Treasurer 

Departmental Rules 352 

I ocal CJovemment 

(Commission 352 

Solid Waste Management 

Capital Projects 1 inancing 

y\gency 354 

I\ . EINAL RULES 

Revenue 

Indnidual hicome Tax 359 

V. ClMULAin E INDEX 406 



NORTH CAROLPsA REGISTER 

Publication Schedule 

(January 1990 - December 1991) 



Issue 


Last Day 


1 ast Day 


Earliest 


+ 


Date 


for 


for 


Date for 


Earliest 




Filing 


Electronic 


Public 


Effective 






Filing 


Hearing & 
Adoption by 
Agency 


Date 


+*++++++ 


++**++++ 


*+++++++ 


++++*+♦+ 


*+++++++ 


01 02.90 


12 07 89 


12/1489 


02 01/90 


05 01/90 


01,16,90 


12 20 89 


12/29,89 


02.15,90 


0501 90 


02 01.90 


01/10 90 


01/18.90 


03 03/90 


06 01 90 


02 15.90 


01 '25 90 


02/01/90 


03/17/90 


06 01,90 


03' 01/90 


02 08 90 


02/15.90 


03/31/90 


07/01/90 


03 15.90 


02,22 90 


03,01. 90 


04. 14 90 


07 01/90 


04 02.90 


03 12 90 


03-1990 


05 02,90 


08 01/90 


04 16 90 


03 '23 90 


03,'30.90 


05 16/90 


08/01,90 


05,01/90 


04 09.90 


04/ 17,. 90 


05 31,90 


0901/90 


05;15.'90 


04, 24 90 


0501. 90 


06 14/90 


09/01/90 


06 01/90 


05 10 90 


05/17.90 


07 01/90 


10 01 90 


06 15.90 


05 24 90 


06/01,90 


07,15/90 


10 01 90 


07 02,90 


06 1 1 90 


06,18 90 


08 01,90 


11 01 90 


07 16,90 


06 22 90 


06/29 90 


08 15,90 


11 01 90 


08 01, '90 


07/11 90 


07/1890 


08, 31 90 


1201 90 


08 15,'90 


07/25 90 


08.01,90 


09 14,90 


12 01 90 


09 04.90 


08 13,90 


08/20,. 90 


10 04 90 


01 01 91 


09/1490 


08 24 90 


08/31/90 


10 1490 


0101, 91 


10 01,90 


09 10 90 


09/17,90 


10 31/90 


02 01.91 


10/15/90 


09/25,90 


10/02,90 


11 14 90 


02 01 91 


11 01, '90 


10/11,90 


10/18,90 


1 1 30 90 


03 01 91 


11 15,90 


10,'24/90 


10/31/90 


12, 1490 


03 01 91 


12,03/90 


11 08 90 


11/15.90 


01 02,91 


04 0191 


12/14 90 


11 21 90 


11/3090 


01,13,''91 


04 01/91 


01 02/91 


1207 90 


12/1490 


02 01 91 


05 01 91 


02,01/91 


01 10/91 


01/1891 


03,03,91 


06 01,91 


03 01,91 


02 08,91 


02/15,91 


03. 31 91 


07 01 91 


04 1 91 


03 11 91 


03/1891 


05 01 91 


08 01 91 


05 0191 


04 10 91 


04 17 91 


05 31 91 


09 01.91 


06 03,91 


05 10,91 


05/17.91 


07,03.91 


10 01 91 


07 0191 


06/10,91 


06/17/91 


07 31 91 


1101 91 


08 01,91 


07/11/91 


07/18/91 


08/31 '91 


12 0191 


09 03/91 


08/12,'91 


08/19,91 


10 03 91 


01 01 92 


10 01/91 


09 10 91 


09/17,91 


10 31 01 


02 01 92 


11/01/91 


10 11,91 


10/18 91 


12 01 91 


03 01 92 


12/02/91 


11/07,91 


11/14/91 


01 01 92 


04 01.92 



* The "Earliest Effeciive Date" is computed assimiing t/iat t/ie public hearing 
and adoption occur in the calendar month immediately following the "Issue 
Date", that the agency files the rule with The Administrative Rules Review 
Commission by the 20th of the same calendar month and that ARRC approves 
the nde at the next calendar month meeting. 



EXECUTIVE ORDERS 



EXECUTIVE ORDER NUIVIBER III 

AMENDMENT AND EXTENSION OF 

EXECUTIVE ORDER NUMBER 45 

WHEREAS, the Governor's Language Institutes 
Advisory Board was established by Executive 
Order Number 45, reissued and extended by 
Executive Order Number 93; and 

WHEREAS, it has been made to appear to me 
that it is necessary to clarify that participation in 
the Institutes is limited to elementary and sec- 
ondary foreign language teachers; and 

WHEREAS, it has been made to appear to me 
that the Advisory Board should have discretion 
to estabhsh guidelines for private school teachers 
to participate in the Institutes; 

THEREFORE, by the authority vested in me as 
Governor by the Constitution and laws of North 
Carolina, it is ORDERED: 

Executive Order Number 45, reissued and ex- 
tended by Executive Order Number 93, is hereby 
amended and extended as follows: 

Section 2. Functions: The Board shall have 
the following duties: 

(A) oversee planning and operation of the 
Governor's Language Institutes which 
shall be located in various locations across 
the State to provide educational programs 
for North Carolina elementary and sec- 
ondary teachers of foreign languages; 

(B) select an external consultant to assist in 
the planning of the Governor's Language 
Institutes' programs and to recommend 
curriculum, instructors, location of Insti- 
tutes, and sources of support; 

(C) select a fuU-time Executive Director to 
manage the Institutes; and 

(D) establish guidelines pertaining to the par- 
ticipation of teachers from non-pubhc 
schools in the Governor's Language In- 
stitutes Program. 

Section 4. Effective Date and Expiration Date. 
This Executive Order shall be effective imme- 
diately, and in accordance with North Carolina 
law shall expire two years from the date it is 
signed. It is subject to reissuance at expiration. 

Done in the Capital City of Raleigh, North 
CaroUna, this 12th day of Apnl, 1990. '^ 

EXECUTIVE ORDER MMBER 112 

RESlRUCrURING AND REKS lABLISMING 

nO\ERNOR'S ADMSORV COMMISSION ON 

TRA\ EL AND TOURISM 



WHEREAS, travel and tourism is of major eco- 
nomic concern to the State; and 

WHEREAS, participation in the Governor's 
Advisory Commission on Travel and Tourism 
by members of the General Assembly and repre- 
sentatives of specific industries in travel and 
tourism would enhance the development of travel 
and tourism issues; and 

WHEREAS, it has been made to appear to me 
that a restructuring of the Governor's Advisory 
Commission on Travel and Tourism is desirable 
in order to foster such participation; 

NOW THEREFORE, by the authority vested in 
me as Governor by the Constitution and laws of 
North Carolina it is ORDERED: 

Section 1. Reestablishment. The Governor's 
Advisory Commission on Travel and Tourism, 
originally established by Executive Order Num- 
ber 8, and extended and reissued by Executive 
Order Number 51 and Executive Order Number 
93, is hereby reestablished according to the terms 
of this order. 

Section 2. Membership. The Commission 
shall consist of not less than the following 16 
members: 

a. the Director of the North Carolina Division 

of Travel and Tourism, who shaU serve 
ex officio; 

b. two Senators, currently serving in the 
North Carolina General Assembly, having 
interest in and knowledge of matters re- 
lated to travel and tourism, who shall be 
appointed by the President of the Senate; 

c. two Representatives, currently serving in 
the North Carolina General Assembly, 
having an interest in and knowledge of 
matters related to travel and tourism, who 
shall be appointed by the Speaker of the 
Mouse of Representatives; 

d. one member associated with the transpor- 

tation industry' who shall be appointed by 
the Governor; 

e. one member associated with the food ser- 

vice industry who shall be appointed by 
the Governor; 

f one member associated with the lodging 
industr,' who shall be appointed by the 
Governor; 

g. at least two at-large members with an in- 
terest in the travel and tourism industry 
who shall be appointed by the Governor; 

h. one member associated with a local cham- 
ber of cormncrce, tourism development 
authority, or convention and visitors bu- 
reau who shall be appointed by the Gov- 
ernor; 



5:5 NORTH CAROLINA REGISTER June I, 1990 



313 



EXECUTIVE ORDERS 



i. one member associated with municipal 
government who shall be appointed by 
the Governor; 

j. one member associated with The Travel 
Council of North Carolina. Inc. (or its 
successors) who shaU be appointed by the 
Governor; 

k. one member associated with parks and re- 
creation or cultural resources who shall 
be appointed by the Govemor; 

1. one member with interest in and knowledge 
of the environmental impact of tra\el and 
tounsm who shall be appointed by the 
Govemor; and 

m. one member associated with county gov- 
ernment who shall be appointed by the 
GoN'cmor. 

Section 3. Tenns. .-Ml members shall serve at 
the pleasure of the appointing authonty. 

Section 4. Chairmanship. The Commission 
shall elect a chairperson from its membership. 

Section 5. Meetings. Ihc fust meeting of the 
Commission shall be caUed by the Director of the 
Di\ision of Tra\el and Tourism. Thereafter, 
meetings will be held on a quarterly basis or as 
directed by the Go\emor or Sccrctan of Eco- 
nomic and Community Development. 

Section 6. (juonim. A majority of the mem- 
bership shall constitute a quonim. 

Section 7. \"acancies. Appointments to fill 
vacancies in the membership of the Commission 
that occur due to resignation, dismissal, death, 
or disability of a member shall be for the balance 
of the unexpired term and shall be made by the 
same appointing authority that made the initial 
appointment. 

Section 8. Duties and Powers. The duties of 
the Commission shall be: 

a. to assist and ad\'isc the Secrctar)' of Eco- 

nomic and Community Development in 
the planning and implementation of pol- 
icy and priorities for the promotion and 
development of tra\el and tourism m the 
State; 

b. to assist and advise the Secretary' of Eco- 

nomic and Commumty Development in 
the de\elopment of a budget for the Divi- 
sion of Tra\el and Tourism; 

c. to recoinmend programs to the Go\emor. 

the General Assembh', and the Secrctar." 
of Economic and Community Develop- 
ment that will promote the State as a 



travel and tourism destination and that 
wiU develop travel and tourism opportu- 
nities throughout the State; 

d. to assist and advise the Secretary of Eco- 

nomic and Community Development in 
setting criteria for selection of an advertis- 
ing agency which wiD assist the depart- 
ment in promotion of the State as a travel 
and tourism destination within the con- 
text of the normal advertising agency re- 
view cycle. These criteria shall be utilized 
by a selection committee appointed by the 
Secretary of Economic and Community 
Development; 

e. to recommend to the Secretary' of Eco- 
nomic and Community Development and 
the General Assembly rules, regulations, 
or standards that may be necessan,' to ad- 
minister a matching funds tourism grant 
program; 

f. to promote the exchange of ideas and in- 

formation on travel and tourism between 
State and local governmental agencies, 
and pri\'ate organizations and indi\iduals; 
and 

g. to advise the Secretary' of Economic and 

Community Development upon any 
matter that the Secretan.', Go\emor, or 
Director of the Di\'ision of Travel and 
Tourism may refer to the Commission. 

Section 9. Administrati\'e Support. The Sec- 
retary of Economic and Community De\elop- 
ment shall pro\ ide clerical and other services as 
required b\ the Commission. 

Section 10. Expenses. While on official busi- 
ness. Commission members who are legislators 
wiU recci\'e subsistence and tra\el allowances at 
the rates set forth in N.C.G.S. 120-3.1. Com- 
mission members who are emplo\"ees of the State 
will receive travel allowances at the rate set forth 
in N.C.G.S. 13S-6. All other Commission 
members will recei\e per diem, subsistence, and 
travel expenses at the rates set forth in N.C.G S. 
138-5. 



Section 



Pre\ious Orders Rescinded. Exec- 



utive Order Number S, and those portions of 
E.\ecuti\e Orders Number 51 and 93 dealing with 
the Governor's Ad\ison' Committee on Tra\'el 
and Tourism, dated June 28, 1985, .July 14, 1987, 
and .lune 20, 198^), respectiveh', are hereby 
rescinded. All records of the Go\'emor's Advi- 
sory' Commission on Tra\'el and Tourism created 
pursuant to these executive orders are transferred 
to the .Vdx'isory Commission created herein. The 
Ad\isop,' Commission herein shall be the suc- 



M4 



5:5 NORTH CAROLINA REGISTER June I, 1990 



EXECUTIVE ORDERS 



cessor to the Governor's Advisory Commission 
on Travel and Tourism. 

Section 12. This Executive Order is effective 
immediately and shall remain in effect until Jan- 
uary 31, 1992, unless terminated earlier or ex- 
tended by further Executive Order. 

Done in Raleigh, North Carolina this the 12th 
day of April, 1990. 

EXFXLTIVK ORDER NUMBER 1 13 

COMMITTEE ON GOVERNOR'S 

CONFERENCES ON 

LIBR.\RY .\ND lNFORM.\TION SERVICES 

VV}JF.REa\S, access to information and ideas is 
indispensable to the development of human po- 
tential, the advancement of civilization, and the 
continuance of enlightened self government; and 

WHEREAS, the preservation and the dissem- 
ination of information and ideas are the primary 
purpose and function of the library and informa- 
tion services; and 

WHEREAS, libraries and information services 
are essential to a learning society; and 

WHEREAS, North Carolina's economic 
strength and the productivity of its workforce 
depends on access to information; and 

WHEREAS, the President of the United States, 
with the concurrence of the United States Senate 
and House of Representatives, has caUed for the 
convening of the Second WTiite House Confer- 
ence on Library and Information Services to be 
held in Washington, D.C., .lulv 9-l.\ 1991; and 

W Hi: RE AS, Public law 100-382, the White 
House Conference on Library and Infomiation 
Services authorizing act, provides $30,000 in fed- 
eral funding to North Carolina to conduct state- 
wide conferences leading up to the Wliitc House 
Conference; 

THEREFORE, by the authority vested in me as 
Governor by the Constitution and laws of North 
Carolma, it is ORDERED: 



Section 1. Establishment. That the North 
Carolina Governor's Conference on Library and 
Information Services Committee is created. 

Section 2. Membership. The Committee will 
be composed of forty persons whom I will ap- 
point for a one year term beginning May 1, 1990, 
and who shall serve at my pleasure. 

Section 3. Chairman. The Secretary of Cul- 
tural Resources will serve as the chairperson of 
the Committee established herein. 

Section 4. Purpose. The mission of the Com- 
mittee shall be to organize and conduct Gover- 
nor's Conferences on Library' and Information 
Services. Nine regional conferences and one 
statewide conference shall be held between Au- 
gust 1990 and Eebruary 1991, with the purpose 
of developing recommendations for further im- 
provement of librarv' and information services to 
increase productivity, expand literacy, and 
strengthen democracy. 

Delegates elected at these conferences shall elect 
sixteen ( 16) delegates to the Second Wliite House 
Conference on Library and Information Services. 

Section 5. Administratise Support. The North 
Carolina Department of Cultural Resources Di- 
vision of the State Library- is the coordinating 
agency to work with the Committee in planning 
and conducting all regional and statewide events 
leading up to the White House Conference. 

Section 6. I'raNel and Subsistence. The De- 
partment of Cultural Resources shall pay travel 
and subsistence to Committee members from the 
$30,000 in federal money appropriated for this 
purpose. 

Section 7. Effccti\e Date and Fxpiratitin Dale. 
This Executi\'c Order shall be effcctne imme- 
diately and shall expire July 13, 1991. 

Done in the Capital City of RaleiizJi, North 
Carolma, this the 20th day of April, IWO. 



5:5 NORTH CAROLINA REGISTER June 1, 1990 



315 



VOTING RIGHTS ACT FINAL DECISION LETTER 



[G.S. 120-30.911 . effective July 16, I9S6. requires that all letters and other documents issued by the 
Attorney General of the United States in v.iiich a final decision is made concerning a "change af- 
fecting voting" under Section 5 of the Voting Rights Act of J 965 be published in the Worth Carolina 
Register. J 



U.S. Department of Justice 
Civil Riahts Di\'ision 



JPT:MAP:TGL:rac 
DJ 166-012-3 
Z5485 



Votina Section 
P.O. Box 66128 
Washington. D.C. 20035-6128 



Fchruan- 26, 1990 



DcWitt r. McCarley, Esq. 

City Attorney 

P.O. Box 7207 

Greenville, North Carolina 27835-7207 

Dear Mr. McCarley: 

This refers to Chapter 272 (1981), which provides that the mayor may vote only in case of a tie 
vote for the City of Green\ille in Pitt County, North Carolina, submitted to the Attorney General 
pursuant to Section 5 of the Voting Rights Act of 1965, as amended, 42 U.S.C. 1973c. We received 
your submission on December 27, 1989. 

The .Attorney General does not interpose any objection to the change in question. Ilo\ve\'er, we 
feel a responsibility to point out that Section 5 of the Voting Rights Act expressly provides that the 
failure of the Attorney General to object does not bar any subsequent judicial action to enjoin the 
enforcement of such change. See the Procedures for the .Administration of Section 5 (28 C.F.R. 51.41). 



Sincerelv, 



.lames P. Turner 

Acting .Assistant .Attorney General 

Ci\il Riolits Di\ision 



By: 



Barr\' II. \\'einberg 
Actmg Chief, \'oting Section 



316 



5:5 NORTH CAROLINA REGISTER June 1,1990 



PROPOSED RULES 



TITLE 4 - DEPARTMENT OF ECONOMIC 
AND COMiMUMTY DEVELOPMENT 



No 



oticc is hereby given in accordance with G.S. 
1 508- 1 2 that the Credit Union Division, ECD in- 
tends to amend nde(s) cited as 4 NCAC 6C 
.0203. 

1 he proposed effective date of this action is Oc- 
tober I. 1990. 

1 he public hearing will be conducted at 10:00 
a.m. on July 9, 1990 at Room 4009, Dobbs 
Building, 430 North Salisbury Street, Raleigh, 
North Carolina 27603. 

(^ omment Procedures: A ny interested person 
may present hislher comments either in writing 
three days prior to or at the hearing or orally at 
the hearing for a maximum of ten minutes. Any 
person may request information by writing or 
calling Mr. Stanley W. Brown, Jr., Credit Union 
Division, 430 North Salisbwy Street. Raleigh, 
North Carolina. (919) 733-750/ 

CHAPTER 6 - CREDIT IJMON 

SLBCHAP I ER 6C - CKEDll LMONS 

SECTION .0200 - ORGAM/.ATION OF CREDIT 
UNIONS 

.0203 FIELDS OF MEMBERSHIP 

(a) Parity. To preserve and protect the welfare 
of state chartered credit union, the Administrator 
may approve fields of membership and allow 
state chartered credit unions the same latitude 
with regard to membership limitations and re- 
strictions as is available to federally chartered 
credit unions. 

(b) New Charters. Pursuant to The ficld(s) of 
membership of an applicant for a new credit im- 
ion shall be reviewed and appro\ed or disap- 
proved in confonnitv with catena and policies set 
out in Chapter J_ of the National Credit Union 
Administrations (N(?Ci\) Interpretative Ruling 
and Policy Slatemcnto S^-^ »ft4 8.J 2. t4+** A4- 
minir i trutor Fway approvo eew chartorii with ftt44& 
Bi m e mbL ' r '. hip which includo more than t-H+t* 
du i tinct group t>F multiple occupational tM= 
a ;.'. (uialional izroup '. . Statement SO- 1 . entitled 
CHAR 11 RING AND Ml I 1) OF MlMHl R- 
Sllll' I'Ol IC'i". which arc adopted bv relerence 
pursuant to (i.S. I.S()lM4(c). 

(c) I xpansion Requests. Requests for ex- 
panded multiple tields of membership tor existing 
credit unions shall be rc\ie\vcd and approved or 



disapproved in conformity with criteria and poli- 
cies set out in Chapter 2 of the National Credit 
Union Administration's Interpretive Ruling and 
Policy Statement 89-1, entitled CHAR Tl'RING 
AND MHUD OF MHMBl-RSHJP POLICY, 
which are adopted by reference pursuant to G.S. 
15()B- 14(c). i» accordunoQ with Paragraphs fa) 
»fl4 fbf e+' tfei*i Rulo, requests fof oxpundod mul 
tipl e fields ei membership fof e justing cr e dit hh- 
i#flrtt may be approved oubjoct to tl*e following: 
f44 Ae groups a«* within a "w e ll d e fined 

area"; 
f5) A<» alToctod groups hav e mad e a written 

r e quest fef s e n^ico; 
fj) the Cr e dit Union has aft4 is ad e quately 
sep i 'ing a largo percentage b( i4« exi ' iting 
potential members; 
(4) there is proof A«t- t4*e Cr e dit Union eaft 

provide oer^'ice to Ae nevf group(s); 
{4j it- is oconomically f e asibl e aft4 ad' i isable; 
{4^ the Cr e dit L'nion has a satir . factor r ' pef- 
loimanc e r e cord, is ¥reli managed aft4 rts 
operations afe safe a«4 sound; aft4 
f^ other factors which afe relevant m af^- 
pro' i ing t4¥e reqii e st. 

(d) If other factors warrant, the Administrator 
may waive or modify any of the requirements in 
this Rule. 

(e) In allowing an expansion of the field of 
membership, any such credit union would be 
bound by membership limitations or restrictions 
contained in its charter or bylaws as amended 
and approved by the Administrator. 

Statutoiy Authority G.S. 54-109.1; 54- 109.2(e): 
54-/09.3(3): 54-/00.4; 54-/09./ / (3); 54-/09. /2; 
54-/09.2/(25); 54-/09.22. 



•k'k'k'k-k'k'k'k'k-k-k'k-k-k-k'k'k'k 



No 



oticc is hercbv gh'cn in accordance with G.S. 
/50B-/2 that the^N.C. Dept. of Economic & 
Community Development - Dr\'ision of Community 
Assistance intends to amctui ride(sl cited as 4 
NCAC 190 .0/02. 

1 he proposed effective date of this action is Oc- 
tober /, /990. 

1 he public hearing will be conducted at 3:00 
p.m. on July 9, /990 at Secotid floor Cotiference 
Room, /307 Glenwood Avenue, Suite 250, 
Raleigh. North Carolina. 

(^ omment Procedures: Comments may be pre- 
sented at the hearing or suht?iitted bv mail to: 



5:5 NORTH CAROLINA REGISTER June I, 1990 



317 



PROPOSED RULES 



Deborah G. McCrae 

Division of Community Assistance 

1307 Glerm'ood Avenue, Suite 250 

Raleigh, North Carolina 27605 

CHAPrFR 19 - DIMSION OF COMMLMTY 
ASSISTANCE 

SI BCHAPTKR 19Q - EMERGENCY SMELTER 
GRANTS PROGRAM ADMINISTRATIVE RLLES 

SECTION .0100 - GENERAL PRO\ ISION 

.0102 DEFINITIONS 

(8j "Shelter" meajis a» indi' . iduul facility ¥r+t^ 
the cupucity te pro' i ida os e might lodoing 
V i 'ho ' jij purpdfiL ' i^ to- ar . r . i '. t homok" . ! . por 'i onr i 
ihrougli acti' . itiL" . fundod und e r t+H* Sub 
chapliT. -l-^t-kf purpo '.e'. i-4 A+t- program, t+h* 
iL'nn "I ' holtor ' L ' ^cludeo liub^ttmc e ubur .e w- 
habililation c e nl e r - i. "any facilit\'. the pri- 
ma r\' purpose iA which is to pro\ide 
tcmporar\ or transitional shelter for the 
homeless m iieneral or for specific popu- 
lations of the homeless." As a result, day 
centers and drop-in centers are eligible to 
receJN e funds tor aU 1 S(j eligible actjyities. 

Authority G.S. J43-J23: I43B-I0: 24 C.F.R. 
5^6.3: P. L. 100-77. 

Til LK 10 DKPAR TMENT OF HL.NLAN 
RESOLRCES 



J\ otice is hereby gh'en in accordance with G.S. 
I SOB- 1 2 that the Commission for Mental Health, 
Developmental Disabilities and Substance .-ibuse 
Services intends to amend ndeis > cited as 10 
SCAC I4C .1117, .1135. .1145: and adopt 
nde(s> cited as 10 \C.AC NC .1147. 

1 he proposed effecti\e date of this action is Oc- 
tober I. 1990. 

1 he public hearing will be conducted at 10:00 
a.m. on July 12, 1990 at Albemarle Building, 325 
A'. Salisbun' Street, 8th Floor Conference Room 
S64, Ralei-di. SC 2~603. 



Co 



ommcnt Procedures: .4ny interested person 
may present his her comments by oral presentation 
or by submitting a written statement. Persons 
wishing to make oral presentations should contact 
.Marilyn Brothers. Di\ision of Mental Health, De- 
velopmental Disabilities and Substance Abuse 
Ser\-ices, 325 A'. Salisbury St.. Ralcii^h. .\C 
27603, (919) 733-4^74 by July II. 1990. The 
hearing record will remain open for written com- 



ments from June 11, 1990 through July 11, 1990. 
Written comments must be sent to the above ad- 
dress and must state the rule(s) to which the 
comments are addressed. Fiscal information on 
these rules is also a\-ailable from the same address. 

CHAPTER 14 - MENTAL HEALTH: GENERAL 

SLHCIIAPIER 14C - GENERAL RLLES 

SECTION .1 100 - STATE AND FEDERAL 
FLNDS ADMINISTERED 

.1 I 17 GRANT-IN-AID FOR ADLLT 
DE\ELOPMENTAL ACTIMTY 
PROGRAMS 

(a) The Diyision shall administer a program of 
grants to area programs to be caUcd the grant- 
in-aid for adult developmental activity programs. 

(b) Such grant-in-aid funds shall be used to 
support clients who are: 

(1) substantially mijntally rotardod dc\elop- 
mentaUv disabled or se\'crely ph\'sicaLly 
disabled persons as defined in 10 NCAC 
ISI .0120 except that clients with a pri- 
mary diagnosis of other than substantial 
montal r e tardation dcvelopmcntallv disa- 
bility or se\'ere physical disability may be 
eligible for funding provided: 

(A) they have been in an AD.AP contin- 
uously from a date prior to Januar\' 1, 
1975 and arc currently rccei\ing .\D.\P 
grant-in-aid: and 

(B) that all other .A DAP standards and 
regulations such as annual re-evaluation 
and referral to the Division of \'ocational 
Rehabilitation Services shall apply equally 
to this client population; or 

otherwise substantially de\elopmentally 

disabled which means those indniduals 

functioniniz at cither I e\'el I or I e\'el 11 

in 



(2) 



as defined 



'Pioneer 1 undine S\ stem 



Operations Manual. \"olume 111. 1 e\ el of 
1 ligibilitw Section 4^ Child and .Adult 
De\elopmental Disability". 



(3) f^ 16 years of age and older; 

(4) (4^ residents of North Carolina; and 

(5) (4^ eligible for AD.AP grant-in-aid regard- 

less of financial resources with the excep- 
tion of a client whose work earnings 
exceed one-half the federal statutory min- 
imum wage o\'er a consccuti\-e 90-day 
period. \Vith prior approval of the ap- 
propriate regional diroctor. area director 
or designee, clients who are participating 
in a supported employment program au- 
thorized b\" the Division may ha\e 
earnings in excess of one-half the mini- 
mum wage. Eligibility for clients in non- 



318 



5:5 NORTH CAROLINA REGISTER June L 1990 



PROPOSED RULES 



supported employment settings whose 
earnings have exceeded over one-half the 
minimum wage for over 90 consecutive 
days may be extended for up to one cal- 
endar year if supported employment 
options are not available locally and the 
client is ineligible for other services from 
the Division of Vocational Rehabilitation, 
or if the cUent's social, behavioral or vo- 
cational skill deficits preclude partic- 
ipation in supported employment options 
and results in inehgibihty for other voca- 
tional rehabilitation services. The eligi- 
bility extension shall occur through the 
existing client recertification process car- 
ried out by the designated area program 
qualilicd developmental disabilities pro- 
fessional (QDDP) as referenced in J_l) 
NCAC bSM .08110. Requests for the ex- 
tension shall be based on a joint case re- 
view involving a representative of the 
involved ADAP, the local VR unit and 
the area program. meeting bot' i ' i X ' on a 
roprcHiontati' i O ef tht» involved iVDAI^, tfce 
local Vocational Rohabilitation unit, H*hi 
ttn* af«* program. 44*i* roquorit ;i hall bo 
submitt e d to aft4 approv e d by tb# duoig 
nat e d afe» progiam qualifi e d m e ntal m- 
tardation prof e'.'. ional r e; ipon ;. ibl e fof 
client certification. The request shall 
identify the specific skill deficits precluding 
eligjbihty for supported employment or 
other vocational rehabilitation services 
and include plans for reducing these defi- 
cits. The certification extension may be 
reapphed for a maximum of two times 
only. The same criteria and procedures 
shall be followed in each instance of re- 
application as are required for the initial 
extension. 

(c) Grant-in-aid for adult developmental activ- 
ity programs shall be administered to area pro- 
grams up to a standard rate per month, as 
approved by the General Assembly or division 
director, or both, except programs may receive 
federal grant-in-aid funds on a total cost basis 
with the Di\ision Director's approval in accord- 
ance v\'ith Section 26 of the "Area Program 
Budgeting and Procedures Manual" (division 
pubhcation APSM 75-1) as published June 27, 
1984. Copies of Section 26 of the "Area Pro- 
gram Budgeting and Procedures Manual" may 
be inspected at the Raleigh office of the Di\'ision 
or copies may be obtained from the Publications 
Office of the Division at a charge which covers 
printing and postage. 

(d) Funding of new adult developmental activ- 
ity programs shall be limited to the areas (county 



aft4/ or community or both) specified in division 
publication APSR 120-1, "Development of New 
Adult Developmental Activity Programs," as 
published July 1, 1981. Copies of this pubhca- 
tion may be inspected or obtained as specified in 
(c) of this Rule. 

(e) To apply for ADAP grant-in-aid funds an 
annual plan and budget for such funds shall be 
included in the appropriate area program's total 
annual plan and budget package when it is sub- 
mitted to the appropriate regional office of the 
Division. 

(f) Approval of release of ADAP grant-in-aid 
funds shall be made by the Division Director or 
his designee. These adoptions by reference are 
in accordance with G.S. 1 SOB- 14(c). 

Slatuloty Authoritv G.S. I22C-1 12(a)(6); 
I22C-13I; I22C-I4J. 

.1 135 FLNDS FOR FORENSIC SCREENING: 
CAI',\CITV TO PROCEED TO TRI.VL 

(a) To the extent state funds are available, the 
division shall provide reimbursement for court- 
ordered screening and evaluation of persons to 
determine their capacity to proceed to trial. 

(b) The screening or evaluation shall be per- 
formed by a qualified mental health professional 
who is registered with the Division as a forensic 
evaluator iicruening examiner v . ho » certified by 
th** Divi ' . . ic)n *t- the tim e ef tbe examination. 
Ii' . aluatioiir . shall be poiformed only by a medical 
doctor or a person deemed a medical expert by 
the court. 

(c) Only area programs are eUgible for re- 
imbursement. 

(d) To obtain reimbursement the area program 
shall submit to the appropriate regional office the 
following: 

(1) four copies of an itemized invoice which 
reflects the following: 

(A) name of respondent screened and eval- 
uated; 

(B) name of certified forensic ncrooning e?t- 
aminer »* evaluator for each respondeat; 

(C) amount of time in hours or portion 
thereof required for each screening exam- 
ination or evaluation; pk» r e port prepa 
ration, 

(D) rate per hour for each examination or 
evaluation; and 

(E) dollar amount for each examination or 
evaluation. 

(2) three copies of the individual court order. 

The copies of the court order shall be at- 
tached to the invoice required in (d)(1) of 
tliis Rule so that tliree of the four copies 



5:5 NORTH CAROLINA REGISTER June l, 1990 



319 



PROPOSED RULES 



of the invoice have a copy of the court 
order attached. 

(e) The rate per hour for each f f cro i joing oxam 
i»ef 6>f forensic e\'aluator required on the invoice 
under (d)l 1)(D) of this Rule shall be the usual 
and customaPi- charges of the area program be- 
fore adjustment to the sliding fee scale. The 
amount in\'oiced to the division shall not exceed 
fiftv dollar!" ' ($50.1)01 pef ocrocning oxamination 
t*f L ' ViiluiUion. the rate approx ed bv the Disision. 

(f) The regional office shall review the m\ oices 
and court orders to determine that all requu'e- 
ments in (d) of this Rule have been met. If the 
invoices are in order and the regional office has 
uncommitted forensic screening or e\aluation 
funds, the in\oices shall be initialed for approval 
by the Regional Director or thr» r e gional »6- 
countant his designee and forwarded to the fiscal 
ser\ices section of the Di\ision for payment. 

(gl The procedures of this Rule apply only to 
reimbursement for screenmg examinations or 
e\'aluations to determine the capacity of an indi- 
\idual to proceed to trial and do not apply to 
reimbursement for any treatment determined to 
be necessar.' as a result of the e\'aluation. 

Sumitor: Authority G.S. I22C-I4~: 143B-I0. 

.1145 l)K\KI.OPMKM.\L DAY CARt 
GRANTS-IN-AID 

(a) The Di\'ision shall administer a program of 
grants to area programs to be called develop- 
mental day care grants-in-aid. 

fb) De\"elopmental day care grants-in-aid shall 
be administered to area programs up to a stand- 
ard rate per month as approved by the General 
Assembly. »ft4 division director or both, unless 
administered on a total cost basis with the Divi- 
sion Director s appro\al in accordance with Sec- 
tion 26 of the ".\rea Program Budgeting and 
Procedures .Manual" (division publication 
APSM 75-1) adopted pursuant to G.S. 
150B-14(c). as published June 27, 1984. Copies 
of Section 26 of the ".-Vrea Program Budgeting 
and Procedures Manual'' may be inspected at the 
Raleigli office of the Division or copies may be 
obtained from the Publications Office of the Di- 
\ision at a charge which co\'ers printing and 
postage. 

(c) Cliildrcn in whose behalf funds are admin- 
istered to programs shall be: 

(1) mentally retarded, otherwise de\elop- 
mcntallv disabled. de\elopmentall\ de- 
hi\cd. or have at\pical de\elopmcnt or be 
infants or toddlers at higli nsk for niL ' ntal 
r e tiudcition. an\ of these conditions, for 
v.hom a disabilit\' specific duigno '. iic lab e l 
diaimosis is inappropnatc: prior te ihrL - o 



ycjarf i ef aeer a* c e rtifi e d h^ a liconncd 
phyincian. a«4 fof whom » k«* roc ' trictivc 
program i* He* a' i 'ailublo; 
(2j between the ages of birth and 19; and 
(3) residents of North Carolina, 
(d) Children with moderate, severe, or pro- 
tound mental retardation, substantial other de- 



\elopmental disabilities, w ho we modorutoly. 
! . L ' vorL ' ly Bf profoundly monlally retarded or in- 
fants or toddlers with or at hiiih risk for de\'el- 



opmenlal dela\s. de\'elopmental disabilities, or 
atxpical de\elopment mental rtjtardation shall be 
gi\en first priont\' for a\ailable funds. Children 
determined t_o be substantially de\elopmentallv 
disabled shall be those functionini; at_ either 1 e\el 
I or 1 e\cl H as defined in "i'ioneer lunding 
S\stem OperatinLZ Manual. X'olume 111: 1 evel of 
1 ligibilitN". Section + Child De'.elopmenlal Dis- 
ability ". Preschool children w ith mild mental 
retardation, other mild de\'elopmental disabilities. 
de\'elopmental dela\'s or those with at\pical de- 
\elopment v . ho ttw mildl) r e tard e d shall be gi\ en 
the next priorit\' for a\'aLlable funds il" they meet 
the eligibility requirement specified in (cj (3) of 
this Rule and il' prior approval of the appropriate 
regional office director or designee is obtained. 
W hon non matching ■' Ocuil lkt i icol . block grant 
t*f othuT fedL ' ral fund ;, afe utiliz e d, childrijn 



aft* de' i L'lopmenlally dolavL ' d ef a* f4-4T ft*f de' i el 
opmenlal dolay i . hall l»r» ^ur'n.'d tf thijy meu't A* 
e ligihiliiy r e quir e m e nt -. .. pocit'iod m fc ) (2 i i*ft4 (44 
fc4 (+H- I'liile rtfki 1+ prior appro' , al >r4 (4+e iippro 
priatc rL'gioniJ officii Vr >ibtainL ' d. 

(e) To apply for de\elopmental day care 
grant-in-aid funds an annual plan and budget for 
such funds shall be included in the appropriate 
area program's total annual plan and budget 
package when it is submitted to the appropriate 
regional office of the Di\"ision. 

(f) I'unds for de\elopmental day care shall be 
allocated among the regions of the Di\ision by 
the Di\ision Director. 

(g) Disbursement of developmental day care 
grant-in-aid funds shall be made after approval 
of the plan and budget by the Regional Director. 

Staiuton Authoritv G.S. 1 22C-1 12(ai(6j: 
I22C-I3I: 122C-I47. 

.1147 EARLY INTER\ ENTION-FEDER.\L-EI!A 

(a) The Division shall administer a program of 
grants to area progr;uns called Early 
lnter\ention-Federal-n 1 L\. 

(b) Such funds shall be used to pro\ide for the 
establishment of early intcr\'cntion ser\"ices. 
Farly inten.ention services shall be pro\"ided 
tlirougli home or center-based models, program 
consultation or through other specific acti\ities 



i20 



5:5 .\ORTH CAROLIXA REGISTER June 7,7990 



PROPOSED RULES 



specified in P.L. 99-457, Section 672(2) (A-G) 
within the following guidelines; 

(1) Children served shall be those with devel- 
opmental delays or atypical development 
or those at risk for these conditions as 
defined in 10 NCAC 14K .0103. 

(2) Children ser\'ed shall be from birth 
through two years of age. 

(3) Funds shall be used to supplement and 
increase the level of State and local funds 
for these children and in no case supplant 
such State and local funds. 

(c) To apply for funds for these services, an 
armual plan and budget for such funds shall be 
included in the appropriate area program's total 
annual plan and budget package when it is sub- 
mitted to the regional office of the Division. 

(d) Funds shall be allocated to the regions of 
the Division by the Division Director. 

(e) Based on the annual plan and budget re- 
quest submitted by the area programs and ap- 
proved by the Division, funds wlU be made 
available for reimbursement of services. 

Stalutorv Aulhoriiv G.S. I22C-112 7(a)(6); 
I22C-I3I; I22C-I50: 20 USC 1471. 

TITLE 11 - DFPARIMKNTOF 
INSURANCE 



1\ otice is hereby given in accordance with G.S. 
I50B-I2 that the N.C. Department of Insurance 
intends to amend ride(s) cited as 1 1 \CAC 6.4 
.0101. .02/2. .0215 - .0216, .0219. .0221, .0223, 
.0236. .0301, .0304 - .0306. .0402 - .0405. .0408, 
.04/0, .04/2 - .04/3, .050/ - .0503, .0505 - .0506, 
.060/ - .0602, .070/ - .0706; repeal nde(s) cited 
as // NCAC 6A .0406 - .0407; and adopt rule(s) 
cited as // \'CAC 6A .04/4 - .04/5. 

1 /le proposed effecti\-e date of this action is Oc- 
tober /. /990. 

J he public hearing will be conducted at /0:00 
a.m. on July 9, /990 at Third Floor Hearing 
Room. Dobbs Building, 430 N . Salisburv Street, 
Raleigh, N.C. 276/1. 

(comment Procedures: Written comments may 
be sent to S/iirley Williams, Agent Setrices Divi- 
sion. P.O. Box 26387, Raleigh, N.C. 276//. Oral 
presentations may be made at the public hearing. 
Anyone having questions should call Shirley 
W'illiams at (9/9) 733-7487, or Ellen Sprctikel at 
(9/9) 733-4W0. 

CHAPTER 6 - AGENT SERVICES Dl\ ISION 



SUBCHAPTER 6A - AGENT SERVICES DIVISION 
SECTION .0100 - GENERAL PROVISIONS 

.0101 DEFINITIONS 

In this Chapter, unless the context otherwise 
requires: 

(1) "Agent Scr\'ices Division" or "Division" 
shaU mean the Agent Ser\iccs Division of 
the North Carolina Department of Insur- 
ance, the Division responsible for the Li- 
censing, education and regulation of agents 
and other licensees. 

(2) "Company" shaU mean any insurance 
company properly licensed 1o do business in 
this state and shall further be defined as in 
Gr^ 5S 3(3). G.S. 5S- 1-5(3). 

(r¥j "Homo State" e* 'Statu trf Ru ' - . idoncy" ohall 
m e an t4w i i tato m which th** liconL ' t'i' is re- 
cponr i ibli* fof paymL ' nt »f ;4at e incom e trWir 
would be uniJiJr juJicial autlu'rity m e^.'^t'ftt- 
ef criminal action ef v i tiuld be uligibl e to 
vote ift a gunoral cluction. 

(3) (4^ "Professional Testing Service" or "Ser- 
vice" shall mean the organization specializ- 
ing in the development and administration 
of licensing examinations on a contract ba- 
sis. 

(4) (-5) "State Licensing Examination" or "Ex- 
amination" shall mean a collection of 
quoi i tionr . items designed to test the appli- 
cant's knowledge of the basic concepts, 
principles and laws relevant to the insurance 
profession to detennine the competence to 
be licensed in North Carolina. 

(5) (4->- The singular shall include the plural and 
the masculine shall include the feminine 
wherc\'er appropriate. 

Statutory Authority G.S. 5S-2-40; 

58-33-30(e)(h). 

SECTION .0200 - DESCKIPIION OF FORMS 

.0212 LICENSES 

AU licenses shall include the name of the 
licensee, t\pe of license, kind of insurance cov- 
ered by the license, date of issuance, name of 
company represented, if applicable, geographic 
afea- co' i iTcd. and terms of the license. In addi- 
tion, all licenses shall bear the signature of the 
Commissioner. 

Statutory Authority G.S. 58-2-40; 58-33-25(1). 

.0215 RESIDENT BROKER .MMMICATION 

The "Resident Broker Application" shall in- 
clude personal information, license fee, signature 



5:5 NORTH CAROLINA REGISTER June I, 1990 



321 



PROPOSED RULES 



of the applicant and other information to aid the 
Division in determining the qualification of the 

J, 1' IJ llV,tlj 1 L . I 1 1 1 H H ' I 111 rTT U -H. *J 1 \J 1 ^TTTTTT 11^.' fT IXl l\S 

roni," . i < al applicants. 

Statutory Auihority G.S. 5S-33-25(n); 
5S-33-3b(a): 3S-33-3b{h)( I ). 

.0216 NONRKSIDENT BKOKKR APPLICATION 

The N(tn Mi ' ridL ' nt "Nonresident Broker Appli- 
cation" shall include personal information, li- 
cense fee, signature of the applicant and other 
information to aid the Division in determining 
the qualification of the applicant and must be 
accompanied by a Home State Certification. 
Thi '' form k U '. od fof both ftt^v rtft4 ri. ' nL" . v cil rtf>- 
plicanl -' . 



Statutor}' Auihoritv G.S. 
5S-33-30(aj: 58-33-3b(hj (2). 



5S-33-25(n): 



.0219 APIM ICAIION TO DETFRMINE 

E[ i(;iBii rr\ for dfsign.vied agfnt 

The "Application to Determine Eligibility for 
Designated Agent" shall include the name and 
address of the agent, a«4 e\idence that the agent 
has satisfied the statutor\ requirements set out in 
G4v. .SN: 2IS;3;'(u)(6). G.S. 5S-37-3.^(i:)(6) and 
other information to auJ the Dnision in deter- 
minmL' the gualil'icalicn (jf the applicant. The 
form must be signed by the applicant cmd nota- 
rized. 



Statutory Authority G.S. 

5S-37-35(g)(6j. 



5S-2-40; 



.0221 CANDIDAIF Gl IDE 

The "Candidate Guide Application" shall re- 
quire the applicant to pro\ide personal informa- 
tion, type of examination to be taken, signature 
of authorized company representative when ap- 
plicable, and other information to aid the Divi- 
sion in determining if the applicant is qualified to 
take the examination for which he is apphing. 
The guide shall be made available throu'-ih the 
Di\ ision and provided upon written request and 
appropriate lee. 

Statuuny Authority G.S. 5S-33-30l'a). 

.022.1 NOKllI { AROl INA I IMIIFI) 

RKPRF-SFNIMINE APl'l ICAIION 

The "North Carolina I imited Iii ' iirancL' Rep- 
resentative .Application" shall include personal 
infonnation, t\pe of license applied for. company 
number, signature of the applicant and the au- 
thorized company representativ'e. and otlier in- 
fonnation to aid the Division in detennining 



what license should be issued and if the applicant 
is qualified for that license. 

Statutory Authority G.S. 5S-33-30(aJ. 

.0236 APPLICATION FOR CORPORATE/ 

PARrNERSIlIP INSLRANCK LICENSE 

The "Application for Corporate Partnership 
Insurance License" shall contain pertinent infor- 
mation concerning the corporation partnership 
and other infonnation that is relevant in aiding 
the Division in detennining if the applicant meets 
eligibility requirements for licensing. The appli- 
cation must be signed by ail otf'icor! . partnoro and 

n ("\ 1 1 T*i 7h*(H I t-i ■ .^ T ,--\ T-T-t-i < c t ■ .-- . -t . -1 T.^ !■ W. \ 1 1-1 t-i . tt 1 ■ ■-> J-l .-1 

1 1 W I ill. JLZ-V_\J. . I I IJV rCTTTT rTT Li JV. U TTTr I ■ I ' 1 1 1 I l\^ TT HI l\l 

renewal applicants. 



Stalutorv Authority 
5S-33-3d(a). 



G.S. 58-33-25(h); 



SECTION .0300 - EX.WIINATIONS 

.0301 T^ PES OF E.VAMINATIONS 

Types of examinajions administered for hcens- 
ing are life, accident and health; accident and 
health; fii'e and casualty; auto physical damage; 
adjusters; hail adjusters; ho '. pital; dental; title; 
and surplus lines. Additional examinations may 
be created and administered at the discretion of 
the Commissioner. 



StatutofT Authority 
5S-33-3d(ej. 



G.S. 5S-2I-65(b)(3); 



.0304 RESPONSIBILITY OF APPLICANT 
.VT E\.\MINATION SITE 

Apphcants are responsible at the examination 
site for the following: 

(1) Applicants who have pre-registered and 
who have not previously failed the same ex- 
amination must bring to the examination 
site the ticket of admission and two forms 
of proof of identity, one of which must be 
photo bearing. 

(2) .Applicants who wish to take the examina- 
tion on a walk-in basis and who have not 
prev iously failed the same examination must 
bnng to the examination site a properly 
completed appUeation, two forms of proof 
of identity, one of which must be photo 
bearing, and proper fees. 

(3) Applicants who have previously tailed an 
examination mav retake the examination in 
accordance with Lnstn.ictions furnished b\' 
the Commissioner and must pav appUcable 
fees for each administration. 

(4) Examination fees must be paid by company 
check, certified check, cashiers check or 



money order, made payable \o_ the S 



enicc. 



i22 



5:5 NORTH CAROLiy.i REGISTER June I, 1990 



PROPOSED RULES 



(5) Applicants taking the life, accident and 
health, accident and health or fire and casu- 
alty examination are required to bring to the 
examination site a prL ' liccnf . ing courr .e com 
plotion c e rtificat e "Certificate of Prelicensing 
Course Completion" indicating that the ap- 
plicant has successfully completed the man- 
datoPi' prelicensing education requirements 
as specified in GrS- 5S 615(d)(2). G.S. 
58-33-3n(d)(2). The pr e lio e nr . ing coupj e 
comploti(m cortificatij "Certificate of Preli- 
censing Course Completion" is \alid for 12 
months from the date of course completion. 
A "Certificate of Prelicensing Course Com- 
pletion" is valid for 60 da\ s frc^m the date 
of issue for those \vai\ing the prelicensing 
education requirement. 

(6) No applications will be supplied at the ex- 
amination site for completion b\ applicants; 
nor will required supplies be furnished to 
applicants. 

(7) Applicants must arri\e at the examination 
site at the time specified in the current ex- 
amination schedule. 

Statutorv Authohtv G.S. 5S-33-30(d)(2); 
58-33-30(6): 5S-33-J25. 

.0305 .\l)MIMSTR.ATION OF EX.\MI\.\TION 

Applicants should expect the examination to be 
administered using, among others, the following 
procedures: 

(1) Applicants shall present to the test site 
personnel upon request the applicable items 
described in 1 1 NCAC 6A .0304 ( 1 ) through 

(2) Applicants should toUow carefully all in- 
structions given by the examination 
proctors, particularly when completing the 
answer sheet. 

(3) Applicants are not permitted to take calcu- 
lators, textbooks, other books or papers into 
the examinations. .Applicants found to have 
any of these materials or other aids wiU not 
be allowed to continue the examination. 

(4) The answer sheets must contain only iden- 
tification data and responses to exam 
questions. No credit will be given to any 
applicant for any marks or answers made in 
the examination booklet. 

(5) Applicants may leave the examination 
room only after obtaining permission from 
the examination proctors and handing in 
exam materials. No e.xtra time will be al- 
lowed for completing the examination. 

(6) Any applicant who gi\es or recei\es assist- 
ance during the examination will be required 
to turn in all exam materials immediateh 



and leave the room. Under these circum- 
stances, the applicant's answer sheet wiU not 
be scored and the relevant facts will be re- 
ported by the proctors to the Commissioner. 
(7) An applicant may take only one examina- 
tion on any given exam date. 

Statutory .Authority G.S. 5S-33-30(e). 

.0306 .APPLICATION FOR EX.AMINATION 

Apphcation for examination and licensure must 
be postmarked no later than the published filing 
deadline for applicants who wish to pre-register 
to take the examination. A separate apphcation 
for examination and licensure must be made for 
each e .suminution. kind of insurance for which 
an indi\ idual wishes to be examined. 

Statutoty Authority G.S. 5S-33-30(e). 

SFXTION .0400 - LICENSING PROCEDLRES 

.0402 LICENSING OF RESIDENT AGENT. 
LTD REPRESENrA1l\E/.\n.lLSrER 

(a) Appheants must meet minimum qualifica- 
tions as stated in G.S. 5S 615 «4 Ae GeuLMul 
Slatutofl ef X€H4l» Carolina. G.S. 58-3.V30. 

(b) .\n upplicant Iw * licen i' O agent licensed to 
sell life, accident and health has authority to sell 
\ariable contracts mui ' t iollow Lidditioiml procc' 
durL ' o a* outlined m +4- NCj\C **A- .0 106. pro- 
vided the agent is licensed to sell sccunties 
through the Secrctan" of State, holds a current 
N.ASD registration, (series 6 or 7 and 63) and is 
a;ipointed b\' a compans aiithori/ed to sell van- 
able annuities and \ ariable life products in North 
Carolina. The com pain is rcspotiMble for \en- 
t\ ing that the agent has met all N.\S1) require- 
ment. 

(c) A limited representati\'e must be licensed 
with each company for which he will solicit 
business. No solicitation shall begin by the ap- 
plicant until he has receix'ed such license. 

(d) Responsibility of company companies for 
fonns and fees: 

(1) Companies shall make application for 
limited representati\'es and ctnnpan) , finn 
adjusters to be licensed. 

(2) Companies shall have on file with the Di- 
vision the address of one central hcensing 
office and the indi\idual within such ollice 
to which all correspondence, licenses, and 
in\'oiccs will be forwarded. 

(3) Companies shall have on fde with the Di- 
\'ision a fet- evf per -' On - ' . Liulhmi/L ' d k* inak^, ' 
appliccition IW ihe i '.'. uancL ' w+d ti. ' rmi 
nation ef liconiic": . , a«d te- r i ubinit the name 
of the indixidual responsible for all agent 



5:5 NORTH CAROLINA REGISTER June I, 1990 



323 



PROPOSED RULES 



(4) 



(e) 



(2) 
(3) 

(4) 



appointments, »«4 termination of agent 
appointments and agent license applica- 
tions submitted hv the company to the 
Division. 

4-hf compani e ji Companies shall submit to 
the Division company checks for the 
proper amount due. 

Responsibility of the agent: 
.-Vn applicant who is subject to the exam- 
ination shall submit to the Ser\'ice the 
candidate guide application along with a 
company check, certified check, cashier s 
check or money order in the appropriate 
amount. 

.-Vn agent shall be responsible for \'enf\ing 
licensure to a company pnor to being ap- 
pointed. 

A person, after surrender or termination 
of a license for such period of time that 
he is no longer eligible for wai\ cr of the 
examination, shall meet all legal require- 
ments for previously unlicensed persons. 
,\n\ licensee licensed under Chapter 5S!. 
Article 33 of the North Carolina Cieneral 
Statutes shall notif\ the Dnision in wnt- 



ing of anv change of residence or business 
address within 30 da\s of such change. 



(5) An agent whose license tenninates because 
of inacti\it\" shall he allowed to reapply 
\\ ithm tw(i \ ears alter the license termi- 
nates w ithout ha\"ing to meet education 
and examination requirements. ]f the 
agent's license terminates a second time 
as a result of continued inactnitv. the 
agent upon application shall he required 
to meet all education and examination re- 
quirements. 

(f) Responsibility of the service: 

(Ij The service shall administer the examina- 
tion for life, accident and health; fire and 
casualty; automobile physical damage; 
adjusters; hail adjusters; ho -. pital wpiico; 
title: accident and health: dental f i on ico; 
and surplus lines. 

(2) The sereice shall issue pass or fail notices 
for each examination administered, with- 
out reference to numeric scores, within 
two weeks of testing. 

(3) The sen'ice shall notify the Division of 
score reports for all examinations admin- 
istered, u ithin one week of testing. 

(4) The ser\ice shall meet the requirements 
of its contract with the Commissioner in 
a timely manner. 

(g) Responsibility of the Di\ision: 

(1) Upon receipt of score reports from the 
service, the Di\Msion shall issue appropri- 
ate licenses to qu:ilified applicants. 



(2) For eligible applicants, the Division shall 
issue a QQ-daN temporary license, tfert t* 
valid p t^ nding 'jucc e r i r i ful compk ' tion e4^y*» 
e xamination, tf »» applicant who holds 
a valid t e mporary lic e n ;.e fo4* ffee exam 
ination. At* Di' . i -. ion ;. hall notify Ai* 
company aH4 A* applicant a«4 ! . hall h^f- 
minatc Ae tL ' mporary' liccnoc For addi- 
tional information refer to \\_ NCAC (S.\ 
.1)4111. 
(h) An applicant for a resident license shall, if 
applicable, obtain a an original letter of clearance 
from his former state of residency certifying the 
kinds of insurance for which the applicant was 
licensed, tfeat- tik* applicant qualified hy- written 
e xamination, that all licenses held in that state 
have been cancelled and that the applicant was 
in good standing in that state at the time of the 
cancellation of licenses. A letter of clearance 
shall be valid for no more than 6(1 da\s from date 
oi_ issuance. 

Siaiutory Authority G.S. 5S-33-30; 5S-33-65. 

.0403 l.ICKNSINC;: NONRESIDENT .AGENT, 
LTD KKPRESENTAIIVE/AD.ILSTER 

(a) An applicant must meet minimum quali- 
fications as stated in G.4^ 5S 615, G.S. 58-33-30. 



except those pertaining to residency. 

(b) A mm rij - id e nt nonresident applicant must 
submit appropriate fonns, along with a company 
check, certilied check, cashier's check or money 
order, and a an onginal letter of certification from 
the applicant's state of residenc\' stating that he 
is duly licensed for the same kind of insurance for 
which he is apph ing. A letter of certification 
shall be \alid for no more than Ml da\ s hxim date 
of issuance. 

Statutivy Atnhoriiy G.S. 5S-33-30(a}. (h)(2). 

.0404 LICKN.SING OK RESIDENT BROKER 

(a) An applicant must be a duly licensed agent 
in North Carolina and ha\e an appointment with 
at least one compan\" for each kind ot insur:ince 
to be brokered. 

(b) .\ broker s license gi\es the holder authority 
to broker only those kinds of insurance for which 
he holds an agent's license and company ap- 
pointment. Brokering must be done througli a 
licensed and appointed ivvudent agent of the 
compan\' with w hich the business is being placed. 
.A broker's licenses does not confer binding au- 
thority; it onl\" gives authority to share in com- 
missions w ith a wnting agent. 

(c) In addition to all required forms, an appli- 
cant must submit a company check, certified 
check, cashier's check or money order, made 



i24 



5:5 .\ORTH CAROLl.\A REGISTER June 1,1990 



PROPOSED RULES 



payable to the N.C. Department of Insurance, in 
the amount set forth in G.S. 58-33- 125(a). 

(d) Each applicant shall file with his application 
the bond required by statute. 

Statutory Authority G.S. 58-33'30(f),(h)( 1 ). 

.0405 LICENSING OF NONRESIDENT 
BROKER 

(a) In addition to all required forms, an appli- 
cant must submit a company check, certified 
check, cashier's check or money order made 
payable to the N.C. Department of Insurance, in 
the amount set forth under G.S. 58 63 1(a). G.S. 
58-33- 125(a). 

(b) A non rcoidont nonresident broker's license 
gives the holder authonty to broker only those 
kinds of insurance for uliich he holds a license 
as an agent in his state of residency. 

(c) Each applicant shall file w ith his application 
the bond required by statute. 

(d) A nun roL . idont nonresident broker must 
submit a an oridnal home state certification with 
his application stating the kinds of insurance tor 
which he is licensed in liis state of residency, and 
whether he is in good standing in his state of 
residency. A letter of certification shall be valid 
for no more than 60 da\'s horn date of issuance. 

(e) Non iL '-' idcnt A nonresident broker may not 
solicit directly or indirectly, but Utey he may 
participate in commissions of brokered business. 
Brokering must be done through a licensed and 
appointed rcjidont agent of the company with 
which the business is being placed. 



a home state certification stating that the appli- 
cant is duly licensed for the same kind of insur- 
ance for which he is applying. A letter of 
certification shall be valid for no more than 60 
days from date of issuance. 



Statutory Authority 
5S-33-/25(a). 



.0406 



G.S. 58-33-30{f),(h){2); 



LICENSING OF RFSIDLN I \ AHI ABLE 
CON I RACI LID RFl'RESEN lAI I\ E 
(REI'EAI.FD) 
.0407 LICENSING/NONRFSIDFN T V,\R1ABLE 
CONTRACT LTD RF1>RFSENT.VTI\ E 
(REPEALED) 

Statuton.- Authority G.S. 5S-614(e)( I ) : 5S-6I5. 

.0408 LICENSING OF MOTOR \ EIIICLE 
DAMAGE APPR.VISER 

(a) The applicant must submit the appropriate 
forms along with a company check, certified 
check, cashier's check or money order in the 
proper amount to the Division. The applicant 
must meet all other relevant requirements of G.S. 
5^ . 615 aft4 5S 611(o). G.S. 58-33-31") and 
58-33- KKe). 

(b) In addition to all required fonns and fees, 
an applicant for a non roL . ident nonresident mo- 
tor vehicle damage appraiser license sliall submit 



Statutory Authority G.S. 58-33- 1 0(e); 58-33-30. 

.0410 TEMPORARY LICENSE 

(a) A temporary license is available only to 
persons described in G.S. 58 622(a). G.S. 
58-33-65(a). 

(b) The company shall submit to the Di\ision 
the application for temporary license at the same 
time the applicant forwards the candidate guide 
application to the ser\'ice. 

(c) Successful completion of the examination 
within 22 days from the date a temporary' license 
is issued win cause the temporary hcense to be 
changed to a permanent license. 

(d) Unsuccessful completion of. or failure to 
take the examination within 212 da\ s frc^m the 
date a temporary license is issued, u lU cause im- 
mediate cancellation of the temporary license. 
The company shall return the temporary license 
to the Division immediately. 

(e) Applicants for temporarv license 4«** te- 
hard-hip under G.S. 5S-33-65(a)( 1 ).f 2) will fol- 
low the procedures (outlined m 44 NCAC 4rV 
.0 102. this Rule. In addition, an authorized 
company official shaU send a letter to the Di\i- 
sion requesting a temporary license and stating 
the reason applicant is applying. 

Statutory Authority G.S. 58-33-65. 

.0412 APPOIN IMEN T OF AGFN I: 

RESPONSIBILI rV OF COMPANY 

Companies shall be responsible for investigating 
an agent prior to appointing the agent. The 
company shall determine that each agent holds 
the proper license for each kind of authority for 
which such agent will be appointed. A compa- 
ny's investigation of an agent shall gi%e due con- 
sideration to the pro\isions of G.S. 58 61 5{c) 
Ci.S. 58-33-30(c) concerning character, compe- 
tence and trustworthiness. The appointing 
company shall Lnquh-e of agents information rel- 
c\ant to the grounds for Hcense suspension or 
re\ocation set forth in G.S. 58 6 | 8((i). G.S. 
58-33-45(a'). The ■'.Appointment of North 
Carolina Agent" form must be received b\ the 
Division within 30 days of the appointment. 

Statutory Authority G.S. 58-33-40. 

.n4L^ IKENSINC; OF COKPORAIION/ 
P.VRTNERSIIIPS 



5:5 NORTH CAROLmA REGISTER June I, 1990 



325 



PROPOSED RULES 



(a) An applicant must meet minimum quali- 
fications as stated in Gr^ 5 S 615. G.S. 58-33-30. 

(b) An applicant shall submit application forms 
with a company check, certified check, cashier's 
check or money order. 

(c) A corporation making first time application 
and domiciled in North Carolina shall pro\ide 
proof of corporate status by submitting a copy 
of its Articles of Incorporation certified by the 
North Carolina Secretary of State. 

(d) A foreign corporation making first time 
apphcation shall pro\ide proof of corporate sta- 
tus by submitting a copy of its application for 
Certificate of Authority certified by the North 
Carolina Secretary of State. 

(e) A partnership making first time application 
shall submit a copy of the tiling \\ ith the county 
clerk s o'i'ncs where the partnership business is 
being conducted. This copy shall be certified by 
the county clerk or a notar>' public. 

(f) Applicant shall file with the d e pailm e nt 
Disision a list of aU companies contracted with 
the firm along with the names and social security 
numbers of the agents representing each com- 
pany. 

(g) Any addition or deletion of an agent or 
compan_\' shall be submitted » v i nting on a form 
prescribed bv the Commissioner within 30 da_\s 
of any such change in the corporate represen- 
tation. 

fh4 -H+<^ "Corporation Pai1nL'r '' hip 

j\pplication" ;. hiill b e ur At* '' ignutur e v t4 r+H- t^ffi- 
(reps t4 t4+e corporation i-vf partn e rs t4 tW part 
noi 'i hip. 

Statiaoij Authority G.S. 5'<-33-30. 

.0414 AD.HSrKR'S I K ARNKR'S PKRMIT 

.A request for an adjuster s learner's peimit must 
be made in writing and accompanied by an 
"Adjuster and Appraiser N.C. License Applica- 
tion". The request must be made by an author- 
ized compan\' or independent adjusting fimi. 
The applicant must ha\e registered to take the 
North Carolina adjuster's examination prior to 
applying for a learner's permit. The permit is 
\'alid for 9(1 days from date of issuance. Only one 
permit will be gi\'cn to an_\ indi\ idual. 

Staiiitoty Autlwiity G.S. 5''^-33-'^0. 

.0415 1 l( K\SIN(; Ol KKM Al CAR 
( OMI'AMKS' KAll'l ()M:ES/ 
REPRESHNlAinKS 

(a) .\n employee or other rcpresentati\e of a 
rental car company who solicits or sells personal 
accident insurance (P.\I) or personal effects co\- 
cragc (I'EC) in connection with a rental agree- 



ment shaU be licensed as a limited representative 
for tra\el, accident and baggage insurance. 

(b) An employee or other representative of a 
rental car company who solicits or sells limited 
liability supplement insurance (LIS) in con- 
nection with a rental agreement shall be licensed 
as an agent for fire and casualty insurance. 

Statutory Authority G.S. 66-205. 

SKCTION .0500 - RFNFAVAl AND 
CANCKLLAIION OK I.ICKNSKS 

.0501 RENK\\ AL/AGENT APF'TS: LICENSES/ 

LIMI lED RKF'S: COMl'AN> AD.ILSIERS 

(a) Annuall\' the Di\ision will pro' i id t? k+ e ach 
ccmipany » fe4 trf appointucvi »h4 licL ' nr . L ' LT . . no- 
tifv each compan\ of dates and pmcedures for 
renewing aLient appointments and limited re pre - 
scnlati\ e and adjuster licenses. i ollo' . ' i mg ift- 
■ itructiono accoinpan>inj • - ■ uch Ut+r tW company 
' . . hall indicate aH appointmL'ntr . *h4 lic^ ' n '.;?;. wh.ich 
rtft' k+ be terminated, lach li-4 i. hiill be returned 
fte- lat e r thiin t-he t4T*4e 's pecified by »4+e ift- 
i . tniction - j. Companies will be guen at least 30 
da\s' advance notice of the last date the Di\ision 
wiU process terminations. 

(b) On the date specified b_\ the Di\ ision as the 
last date to submit terminations, the Di\ision 
shall cease processing al! terminations and bill 
companies for renewals. .\11 appointments and 
licenses will automatically be renewed unless the 
Di\ ision has received a termination request from 
the compan\ within the specified time. 

(c) Each companv' will be sent an invoice stat- 
ing the total amount of mone\' due. ("ompanies 
shall remit a check made payable to the North 
Carolina Department cif Insurance in the amount 
of the invoice. .Any discrepancies claimed b>' 
companies w ill be iidju^ted in\eslii:aled onl_\ after 
full pa\ ment is received. 

(d) I'pon receipt of the companv check, the 
Division will mail to the compan\- a list of all 
appointments and hcenses renewed. 

(e) .Appointments recorded and licenses issued 
prior to the renewal date, liut after tlie date 
specified b_\ the Division as the last date to 
process termination will be considered \ alid until 
the following vear. 

(f) .\nnuallv the Division will, upon written 
request ani-1 pa\ ment o[ ^^re^cnl''Cl-^ lee, prov ale 
to any companv a Hst cM aU appomtecs or 
licensees. 

Statutory Authority G.S. 5S-33-55. 

.0502 RENEW AL OF BROKERS' LICENSES 

(a) The Division wall mail to all brokers a- 
"R e sid e nt Broker .\pplicalion " irH^ "Nou 



326 



5:5 \ORTH CAROLI.XA RE(,ISTER June 1,1990 



PROPOSED RULES 



Roi f idont Brok e r Application," whiohc-'vor » the 
appropriate renewal application. 

(b) Brokers shall complete the form and return 
it to the Division by the date specified. 

(c) Brokers shall submit the proper renewal fee 
as stated in Gh^ 5S 63 1. G.S. 58-33- 125(a). An 
agency check, company check, certilled check, 
cashier's check or money order must be made 
payable to the North Carolina Department of 
Insurance. 

(d) Broker bonds must be in force at the time 
of renewal. 

Staiutory Authority G.S. 5S-33-30(f); 58-33-125. 

.0503 RKNKW AL: SFl F-FMFn,OM:D 
.\r).ll SIKK: MOrOR NT.HICLE 
r).\M.\GE .MM'R 

The Di\ision will mail an appropriate renewal 
form to the self-employed adjuster or motor ve- 
hicle damage appraiser and will specify the last 
date that the Di\'ision will accept renewals. The 
renewal form and appropriate renewal fee as 
specified in G.^ 5S 63 I G.S. 5R-33- 125(a) must 
be submitted to the Di\ision withm the time al- 
lowed. An adjusting company check, certified 
check, cashier's check or money order must be 
made payable to the North Carolina Department 
of Insurance. 

Statutoty .-luthority G.S. 5S-33-25(n); 5S-33-/25. 

.0505 C.\\CELL\TION/l ICENSF.S FOR 
LIMI FED REPS .\M) COMI'ANY 
ADJUSTERS 

(a) Any company wishing to cancel the license 
of any of its limited representatives or adjusters 
shaO 

(4^ Submit submit the N.C. Notice of Cancel- 
lation to the Di\ isiiin within 3(1 days of the date 
on which limited representati\'e's or adjuster's 
empknmcnt with the cornpan\' was terminated. 
(4+ Send t4w lic e n -. o k+ t4+e Disi ' .iitin with (-!+«* 
ntuico t4" cancc ' llation. U ih^ Iicoit i l' Ciininit b^ 
IcKalc ' d, t4+e company mu^t fiunir . h Uw> Bis i ;. ion 
>vilh *H- alfidci' . it '. Idling t4+e r e a ;. on fof the licL'n^: i O 
ftrt4- being r e lumed. 

f3^ f^ cancL'llulion other than at- the r e newal 
date, submit not i c e t+f cancellalitm V i ilhin tW days 
evf the drrie w* V i hich t-he limit e d r e pre 'i entati' i e'o 
&f adju 'i ter' '. empktyment ' . s ilh t-he compuny wes 
terminated. 

(b) It is the comp.'m\ 's resp^^^nsibilit^^ to retrie\ e 
and destroy an\ license issued m its name Ui anv 
limited represenlati\e or adjuster terminated by 
such companw 

Statutoty Authority G.S. 5S-33-55. 



.0506 CANCELLATION OF LICENSES 
ISSLED TO INDIVIDUAl >S 

(a) An agent, broker, adjuster or motor vehicle 
damage appraiser desiring to cancel a license shall 
submit a notarized written request to the Divi- 
sion and return the license to the Division. If the 
license cannot be located, the licensee must fur- 
nish a statement explaining the reason for not 
returning the Ucense. 

(b) Cancellation of a license will automatically 
tenninate all appointments for the kind of au- 
thority covered by such Ucense. 

Statuton' Authority G.S. 5S-33-40(e); 5S-33-50. 
SECI ION .0600 - DENIAL OF LICENSE 

.0601 B.VSIS FOR DENLVL OF LICENSE 

For purposes of determining that a licensee has 
committed forgery- under Gr^ 58 6ia(a)(12) G.S. 
5?s-33-45(a)( 12) an "Application for Insurance" 
shall be considered to be the apphcation form, 
underwriting form and any poUcy ser\icing or 
claim form that affects any funds, rights or privi- 
leges of the policyowner, beneticiar\' or insured. 

Statutory Authority G.S. 5S-33-45. 

.0602 COI RF RECORDS AND Al FIDAMIS 
REQl IRED 

An individual who has been convicted of a 
mi.sdemeanor in\ol\ing moral turpitude, or a fel- 
ony, shall submit to the Dixision the follouing 
infonnation with application ', the application for 
lic e n -.e licensure and examination; 

( 1 ) a copy of the entire court record judLrment. 
including a complete criminal histor\ check; 

(2) a copy of unconilitional release rH+4 or un- 
conditional discharge from the Board of 
Paroles, where applicable, on the forms 
provided by the North Carolina Department 
of Correction; 

(3) if the applicant or licensee is currentl_\' em- 
ployed or expects to be employed by an 
insurer, agency, company or firm in the 
business of insurance, the applicant or 
licensee shall submit a letter from such em- 
ployer or potential employer stating that the 
applicant or licensee has disclosed to the 
employer information concerning the con- 
viction; 

(4) a notarized affidavit from the applicant 
concerning the conviction; 

(5) when applicable, a statement from the ap- 
plicant's probation officer; 

(6) any additional supportive infoimation 
which that the Div ision deems necessarv' and 
proper. 



5:5 NORTH CAROLINA REGISTER June 1, 1990 



327 



PROPOSED RULES 



Stalutoiy Authority G.S. 58-33-45(a)(8). 
SECTION .0700 - F'RELICENSING EDLCATION 

.0701 GENERAL REQUIREMENTS 

(a) This Section applies to individuals attempt- 
ing to obtain a resident license to solicit life, ac- 
cident and health, and i.)r lire and casualty or 
accident and health insurance in North Carolina 
except as specifically exempted by 1 1 NCAC 6A 
.07U1 (b) throuuji fe^ and (c). 
(4*^ '-t4+e> follo' . ' i' ing individuals applying fof a 
Ufev accident aft4 health and or fiw ctmi caiiualty 
licens e shall b€> exempt from At* pro' i isions (4 
th» Section: 

f-l-^ Aft indis idual liceiT . ed ift Noilh Carolina 
(++f l+fer accident rt«4 h e alth and or ftfe »«4 
casualty insuranc e within -24 months pfe- 
ceding t4+e date t+f application f&f » ftevr 
license m- Arri- kind t+f insurance: h+ 
f34 A-H- indis idual liceu '. ed va another •. tal e (of 
hfe- accident ttftd- health and or fee rt«4 
casucdty insurance within iA months pfe- 
ceding tW drfte t-4' application fef i* i+evr 
liceu '^ e ift t+H+4- kind t*4- in -' Uninc e . upon 
tiirni '. hing a letter e+~ clearance ceilif>ing 
same ttft4 t4wt- such license vr«* granted 
upon pas 'i ing a ' ■ vntten examination given 
i*y- aft iiiMirance depailm e nt t+f a state. A 
letter h4 clearanc e t-^ ' ■ alid fn* m* months 
froni jte 4a4r* ef issuanc e . 

(b) Indi\iduals who arc exempt from the re- 
quirement for a written examination pursuant to 
CjS 5S-33-3.^( 1 ). (3). and (4) are exempt from 
prehcensing education requirements. 

f^ Ihe follo' . ' i ing individual '' ai''ph . mg ft»f a l+fer 
accid e nt aft4 h e alth liceiT ' e s . hall be e.\empt from 
tl+e pro' . isuiiT ' e4 44^ Section: 

f4-| Chailered Financial Consultant (Chl'C); 

(-3-)' Crhart e r e d ■!-+&* Indervvrit e r (CI I."); &f 
frH Fello' i V ef }-ife Miina ' -i e ment hi ' ^titute 

in Ml): ^ 
(rM -t-tfe I ndeP i ' i Titer Trainin ' -: Council bellow 

(1 rici ). 

{^^ Individuals applyiiig ftw a fife avt^ casualty 
liceu '. e ' . vho afe Chartered Prop e rty nfii^ Ca i' Ualty 
I ' iiderv . nters (Cl'Cl") ' . ' hall be eveinpt Irom Ae 
pros i '. ion ^. >-4 l4+i-' Section. 

(c) (-e4 4-be foUovMng individuals applying f»f 
a Mer acckleiit aftd health and or fife aft4 casualty 
liceiV ' e '' hall be exempt from (4+e provi '. ioiT ' t*f 
t-b+-T Section bH4- afe required k+ trtlre (-he exam 
illation: Indi\'idiials \\ ho satisf\- the tollowmiz are 
exempt from prelicensing education require- 
ments: 

( 1 ) Life, accident and health: 



(A) Certified Employee Benefits Specialist 
(CEBS); or 

(B) Fraternal Insurance Counselor (FIC); 
or 

(C) Life Underwriter Training Council 
Graduate (LL'TC Graduate); or 

(D) Certified Financial Planner (CFP). ef 
(Ji) I lolder 94^ degree ift insuranco (asriociate 

e* bachelors). 

(2) Fire and casualty: 

(.A) Accredited .-\dvisor in Insurance (AAI); 
or 

(B) Associate in Claims (AIC); or 

(C) Associate in Insurance Accounting and 
Finance (AIAF); or 

(D) Associate in Premium Auditing (/\PA); 
or 

(F) Associate in Risk Management (ARM); 
or 

(F) Associate in Underwriting (.VU): or 

(G) Certified Insurance Counselor (CIC); 
or 

(H) Holder of Certificate in General Insur- 
ance (INS), ef 

f4-)- Holder ef degree ift Insurance (i\ssociat e 
ef Bachelors). 

(3) Accident and health: 

( A ) .Associate m I lie and Health Claims 
(AkIlC): or 

(B) Certified Fmpknee Benefits Specialist 
(CFBSi: or 

(C) Holder of Health Insurance .Association 
of .America Certificate: or 

(D) Registered Health Undc^\^ nter ( RIIU). 

(4) I ifc. .iccident ;tnd he.ilth. tire :ind casualtv 



and accident anil health: 



(.A) I lolder of degree m insurance (associate 
or b.ichelorsi: or 

(B) An indi\idu:il \\ hose license in another 
state or lurisdiction for the same kind ot 
insurance as that lor \\ hich applieil has 
been cancelled within W] da\s o[ the Di- 
\ ision s receipt ol. L!I£ letter oi_ clearance 
and the indi\ idual's ret.|uest tor waner ot 
prelicensing educatuin: or 

( C ) An indi\ idiial who ^ currenth licensed 
in another state or jurisdictitm for the 
same kind ot insurance as that lor which 



applied. 

(d) If an applicant exempted from prelicensing 
education under the pro\isions of Rule .()7|I1(l') 
_M NCAC 6A .070 1(c) fails the examination, the 
applicant must successfully meet North 
Carolina's mandator) prelicensing education re- 
quirement prior to retaking the examination. 

(£1 (4^ In this Section, unless otherwise noted 
the following defuiitions will appl}': 



32S 



5:5 NORTH CAROLINA REGISTER June I. 1990 



PROPOSED RULES 



(1) "Assistant Instructor" shall mean an ap- 
proved instructor in a classroom school 
who is responsible for the presentation of 
lesson plans to assure that the outline is 
taught to that school's students. The as- 
sistant instructor shall be supervised by 
the school's appropriate lead instructor 
and program director. 

(2) "Classroom School" shaU mean an entity 
that provides prelicensing education 
sponsored by a company, agency, associ- 
ation or educational institution through 
instruction by either a lead or assistant 
instructor utilizing a teaching curriculum 
based on the outline. 

(3) "Correspondence Course" shall mean 
home, self, individual, or correspondence 
study utilizing programmed text in- 
structions. 

(4) "Correspondence School" shall mean an 
entity that provides prelicensing education 
sponsored by a company, agency, associ- 
ation or educational institution through 
completion of a correspondence course 
which that has been appro\ed by the 
Commissioner, with students individually 
supervised by an approved proctor. 

(5) "Instnictional Hour" shall mean a 
6n-minute hour. 



(6) (-i^ "lead Instructor" shall mean an ap- 

pro\ed instructor in a classroom school 
who is responsible for preparation and 
presentation of lesson plans to assure that 
the outline is taught to that school's stu- 
dents and who prepares a final course ex- 
amination. The lead instructor shall 
direct and supervise teaching by an assist- 
ant instructor. 

(7) (4^ "Outline" shall mean the Noilh 
Ciirolina In '. tructorii 1 ifu. iVccidcnt ftfui 
I l e dlth and or bir e i+H4 Cu ' Hialty Outline ' 
instRictor/examination content (uitlines 
prepared and published by the Depart- 
ment in the "State of North Carolina In- 
surance 1 icensiire bxamination Candidate 
(juide". 

(S) {p-f "i'roctor" shall mean an indi\idual ap- 
proved by the Commissioner to assist and 
supervise students in the completion of an 
approved correspondence course. 

(9) fX^ "Program Director" shall mean the in- 
di\idual associated with an appro\ed 
classroom or correspondence school who 
is responsible for the administration of 
that school according to 1 1 NCAC 6A 
.0702(4^ (1). 



.0702 PRELICENSING EDUCATION SCHOOLS 

(a) This Rule applies to all classroom and cor- 
respondence schools offering a prelicensing 
course prescribed by General Statute 58 615. 
58-33-30. All schools desiring to conduct a pre- 
licensing course shall be approved by the Com- 
missioner prior to commencement of the courses. 

(b) A school seeking approval to conduct a 
prelicensing course shall make written applica- 
tion to the Cornmissioner upon a fomi pre- 
scribed by the Commissioner. 

(c) After due investigation and consideration, 
approval shall be granted to the school when it 
is shown to the satisfaction of the Commissioner 
that: 

( 1 ) the school has submitted all information 
required by the Commissioner; 

(2) the course to be conducted complies with 
fUite mi^ t»f thk Suction; 1 1 NCAC 6A 
.0704; 

(3) the instructor or proctor for the course has 
been approved by the Commissioner in 
accordance with Rul e .0705 ef .0706 ef 
tfe» S e ction: 1 1 NCAC 6A .0705 or .1)706; 
and 

(4) the program director has been approved 
by the Commissioner in accordance with 
RtO^ mm ef t^w. S e ct i on. ]J_ NCAC 6A 
.0703. 

(d) The following guidelines shall apply to the 
appro\al of classroom and conespondence 
schools: 

(1) Approval extends only to the course and 
location reported in the application for 
appro\al. 

(2) Approval shall terminate on June 30 next 
following the date of issuance. 

(3) A school must renew annually its approval 
to conduct prelicensing courses by sub- 
mitting an application for approval not 
later than May 31 of each year. 

(-4-^ Am- i . chool th^t- do e- j Ret- conduct «4- least 
»fte PruiicL ' ni ' ing cour^ i ij during the 34 
monthn pi\'C(.Hling ap|ilication ffvf runcwal 
tihiiU bt* dt 'e nic ' d ineligibl e fef approval. 

(e) The Commissioner shall deny, ' . sithdraw 
revoke or suspend approval of any school upon 
finding that: 

( 1) the school has refused or failed to comply 
with any of the pro\isions of Ruk *'. .07112. 
.0703. .1 1 701, .071)5. w 4W44 ef t4«- Set:^ 
t++WT U NCAC 6A .0702. .0703. .0704, 
.0705 or .0706; or 



Statutoiy Authority G.S. 5S-33-30(d); 5S-33- 



35. 



(2) any school official or instructor has ob- 
tained or used, or attempted to obtain or 
use, in any manner or foim, examination 
questions; or 



5:5 NORTH CAROLINA REGISTER June 1,1990 



329 



PROPOSED RULES 



(3) the school's students have a licensing ex- 
amination performance record that is de- 
termined by the Commissioner to be 
substantially below the performance re- 
cord of all first-time examination candi- 
dates; or 

(4) the school has not conducted at least one 
prelicensing course during any 24-month 
penod; or 

(5) the school has refused or failed to submit 
intbrmation or properly-completed forms 
prescnbed by the Commissioner within 
the required time frames. 

(f| In all proceedings to V i ithdrav i ef deny, re- 
\'oke or suspend approval of a school, the pro- 
visions of Chapter 150B of the General Statutes 
shall be applicable. 

(g) When a school's approval is discontinued. 
the procedure for reinstatement shaU be to apply 
as a new school, with a statement of the reasons 
that the school is now eligible for reconsider- 
ation. The Commissioner may require an in- 
\'estigation before new approval is granted. 

(h) If a school's appro\al has been suspended 
upon the Commissioner's finding that the school 
has not conducted at least one prehcensmg 
course during an\' 24-month penod. that school 
may reapply after one \ear of suspension. At 
such time, the school will be gi\en 12 months to 
conduct at_ least one prelicensme course. If such 
course is not conducted the school's authority 
will be suspended indefinitely. 

ri| (4*^ The following guidelines shall apply for 
changes during any approved year: 

( 1 ) A school shall obtain advance appro\'al 
from the Commissioner for any change 
of course location or change of instructors 
or proctors. Requests for approval of 
such changes shall be in writing. 

(2) /Vn approved school that intends to ter- 
minate its prelicensing program, other 
than during the annual renewal period. 
shall notify the Commissioner in unting. 

(3) A school shall notify the Commissioner in 
writing of a change of textbook. 

(4) A school shall notify the Commissioner In 
writing at the time an instructor or 
proctor resigns or ceases to be associated 
with the school. 

fjl fi) An approved school may utilize, for ad- 
vertising or promotional purposes, examination 
performance data pro' i idod made a\ailahlc to the 
school by the Commissioner, pro\idcd that any 
data disclosed by the school shall be accurate, 
shall he presented in a manner that is not mis- 
leading, and shall; 

(1) be liniitcd to the annual examination per- 
formance data for the particuL'U" school 



and for aU examination candidates in the 
state; 

(2) include the type of examination, the time 
period covered, the number of first-time 
candidates examined, and either the num- 
ber or percentage of first-time candidates 
passing the examination; and 

(3) be reviewed and approved by the Com- 
missioner in writing prior to pubUcation. 

(k) {ff A classroom school's facilities and 
equipment shall have been found by appropriate 
local building, heating and fire inspectors to be 
in compliance with all applicable local, state and 
federal laws and regulations regarding safety, 
sanitation, and access by handicapped persons. 

(1) fir) The school shall designate one person as 
the program director. The program director shall 
be responsible for administrative matters such as 
recruiting, evaluating and certif\ing the qualifica- 
tions of instructors and or proctors, program de- 
velopment, scheduling of classes, advertising, 
maintaining facilities and equipment, 
recordkeeping and general supervision of the 
prelicensing program. 

(m) (^ A school shaU pubUsh and provide to 
all prelicensing students prior to enrollment a 
bulletin or similar official pubHcation of that 
school that contains the following information: 

(1) name of school and pubhcation date; 

(2) name of sponsor; 

(3) all associated costs; 

(4) detailed outline or description of aU preli- 
censing courses offered. 

(n) (ffi) A school shaU file with the Commis- 
sioner information giving exact dates, times, and 
locations for each scheduled preUcensing course. 
This information may be submitted either at the 
beginning of each quarter semester, or no later 
than one week prior to the first class meeting of 
each preUcensing course. 

(o) (ft) Classroom schools shaU retain the fol- 
lowing material on file at one location for a 
minimum of three \ears: 
{ 1) class schedules; 

(2) advertisements; 

(3) bulletins, catalogues, and other olTicial 
pubUcations; 

(4) grade reports; 

(5) attendance records; 

(6) master copy of each final course exam- 
ination, indicating the answer key, the 
school name, course location, course dates 
and name of instructor; a«4 

(7) list of student names, aH4 uith social se- 
curity numbers, for each course, and the 
name of the Instructor; and 

(8) student registration inl'ormation. 



330 



5:5 NORTH CAROLINA REGISTER June I, 1990 



PROPOSED RULES 



All files shall be made available to the Commis- 
sioner upon request. 

(p) f») Correspondence schools shall retain the 
following material on file at one location for a 
minimum of three years: 
(1) advertisements, 

bulletins, catalogues and other official 
publications, 

master copy of each final course exam- 
ination, indicating the answer key, 
grade reports, aft4 

a List of student names, m¥^ with social 
security numbers, for each course, and the 
name of the proctor, and 
(6) student registration information that must 
be obtained prior to the distnbution of 
course matenal. 



(2) 

(3) 

(4) 
(5) 



All flics shall be made available to the Commis- 
sioner upon request. 

(q) (f>^ In the event of illness, injury or death 
of an instructor or proctor, the program director 
may utilL?;e a non-approved instructor or proctor 
to complete a course. The school shaU thereafter 
suspend operation of its prcliccnsing courses untU 
an approved instructor or proctor is available. 

Statutory Authority G.S. 5S-33-30(dj. 

.0703 PROGR.\M DIRECTORS 

(a) All program directors shall be approved by 
the Commissioner in accordance with the pro- 
visions of tills Section. 

(b) A person desiring approval as a program 
director shall make written application to the 
Commissioner upon a form prescnbed by the 
Commissioner. 

(c) Applications must be endorsed by the 
president/chief operating officer of the sponsoring 
educational institution, company, agency or as- 
sociation. If the employing school is not cur- 
rently approved by the Commissioner, an 
appUcation for school approval should be sub- 
mitted along with the application for program 
director approval. 

(d) The Commissioner shall approve an appli- 
cant as a program director upon finding that the 
applicant is recommended by the president, chief 
operating officer of the sponsoring educational 
institution, company, agency or association has 
submitted all information required by the Com- 
missioner, possesses good character and reputa- 
tion, and: por i r . or . oufi the qualifications dL '-. cribt'd 
ift tk» PLiraui'apii: 

(1) 1 lolds a baccalaureate or higher degree and 
has at least two y e ars' years of experience 
as an instructor of insurance or as an ed- 
ucational administrator; or 



(2) Holds a baccalaureate or higher degree and 
has at least six years of experience in the 
insurance industry with a minimum of 
two years of experience in insurance 
management; or 

(3) Possesses qualifications which that are 
found by the Commissioner to be sub- 
stantially equivalent to those described. 

(e) Program director appro\'al shall be vahd for 
an indefmite period, subject to future changes in 
laws or regulations regarding approval of pro- 
gram directors. 

(f) The Commissioner shall deny, revoke, or 
suspend the approval of any program director 
upon tlnding that: 

(1) The program director fails to meet the 
criteria for approval pro\ided by these 
regulations; or 

(2) The program director has failed to comply 
with any provisions of 1 1 NCAC 6A 
.0700; or 

(3) The program director's employment has 
been terminated by any sponsoring edu- 
cational institution/company; or 

(4) The program director provided false in- 
fonnation to the Commissioner when 
making appHcation for approval; or 

(5) The program director has at any time had 
an insurance license denied, suspended or 
revoked by this or any other insurance 
department, or has ever been required to 
return a license while under investigation; 
or 

(6) The program director has obtained or 
used, or attempted to obtain or use, in any 
manner or form, examination questions; 
or 

(7) The program director has failed to utilize 
an acceptable level of performance in di- 
recting the insurance prcliccnsing pro- 
gram. 

(g) In all proceedings to deny, revoke, or sus- 
pend approval, the provisions of Chapter 150B 
of the General Statutes shall be applicable. 

(h) Wlien a program director's approval is dis- 
continued, the procedure for reinstatement shall 
be to apply as a new program director, with a 
statement of the reasons that he is now eligible 
for reconsideration. The Commissioner may re- 
quire an in\"estigation before new appros'al is 
granted. 

(i) An approved program director shall inform 
the Commissioner of any change in program af- 
filiation by filing an application for program di- 
rector approN'al prior to directing a new program. 

(j) Full-time faculty of fully accredited senior 
level colleges and universities who reuularlv teach 



5:5 iWRTH CAROLINA REGISTER June 1. 1990 



331 



PROPOSED RULES 



risk and insurance courses shall be deemed to 
meet the eligibility requirements of this Section. 

Statutory Authority G.S. 5S-33-30(d). 

.0704 COl RSES 

(a) This Rule establishes minimum standards 
for life, accident and health, andor fire and cas- 
ualty and accident and health prelicensing 
courses prescribed bv Oeneral Statute 5S 615. 
5S-3.V3n. 

(b) Insurance prelicensing programs shall con- 
sist of &ft« »f both any of the following courses: 

(1) life, accident and health insurance; 

(2) fire and casualty insurance; 

(3) accident and health insurance. 

(c) The ma.ximum length of an approved pre- 
licensing education course shall be at the dis- 
cretion of the school. In no event shall a school 
offer a life, accident and health or fire and casu- 
alty course of l^wv fewer than 40 hours or an ac^ 
cident and health course of fewer than 2(1 hours. 



(2) 



(3) 



(4) 



(d) The following requirements are course 
standards: 

(I) /Ml courses shall consist of instruction in 
the subject areas covered in the outline. 
Courses may also include coverage of re- 
lated subject areas not prescribed by the 
Commissioner; howe\er, such courses 
must provide additional class time, above 
the minimum requirement stated in Rule 
.0704(c) of this Section, for the coverage 
of such subject areas. 

Prelicensing courses are intended for in- 
structional purposes only and not for 
promoting the interests of or recruiting 
employees for any particular insurance 
agency or company. 

Schools shall establish and enforce aca- 
demic standards for course completion 
that reasonably assure that students re- 
ceiving a passing grade possess adequate 
knowledge and understanding of the sub- 
ject areas prescribed for the course. In 
any course for which college credit is 
awarded, the passing grade for such course 
shall be the same as the grade that is con- 
sidered passing under the school's uniform 
grading system. 

Schools shall conduct a final comprehen- 
sive course cxammation that covers all 
subject areas prescribed by the Commis- 
sioner for each course. T^ liniL ' k*f tfe. 
e.'uiinincition ' jhuU bt* tft adi.lilion k> <4+e 
minimum 44 ho urn &f iniUruction Ft»- 
quii' t' d. Schools may allow a student to 
make up a missed examination or to re- 
take a tailed examination in accordance 



(5) 



(6) 



with policies adopted by the school. No 
final examination fwa¥ be 'p ch e dulL ' d until 
Ae fifth 4i*y after tfee commonc e m t» nt ©f 
Ae oour ji (j. shall be gven until a student 
has completed the instructional require- 
ment. 

Students shall attend a minimum of 40 
hours of life, accident and health or fire 
and casualty instruction or a mmimum of 
20 hours of accident and health instruc- 



(C-) 



tion. IkiHik timij t»»y lime set aside for 
breaks, pop-tests, quizzes, the final com- 
prehensi\e course examination and other 
non-instructional actnilies shall not count 
toward the 444 hour minimum instruc- 
tional requirement. If a life, accident and 
health or property and casualty course is 
scheduled for 50 or more instructional 
hours, a student shall attend at least 80 
percent of the total hours offered by the 
course. 
I he foUouing requirements shall be met for 



scheduling purposes: 

(1) Class meetings or correspondence courses 
shall be LirrLited to a maximum of eight 
hours of instruction in any given day. 

(2) Classroom courses shall ha\e fixed begin- 
ning and ending dates and may not be 
conducted on an opcn-entrv open-exit 
basis. 

(3) Correspondence courses shall not have 
fixed beginning and ending dates and shall 
be conducted on an open-entry^ basis. 

(f) The following shall apply to the use of text 
books: 

(1) Choice of classroom course text shall be 
at the discretion of each school. 

(2) Text books used m correspondence 
courses shall be approved by the Com- 
missioner before use. 

(g) All prelicensing classroom school courses 
shall be taught by Instructors who have been ap- 
proved by the Commissioner. A lead instructor 
must be designated for each course location. 

(h) All prelicensing correspondence courses 
shall be monitored by proctors who ha\e been 
appro\ed by the Commissioner. A proctor shall 
be designated for each correspondence course 
student. 

(i) The following certification of course com- 
pletion procedures shall apply: 

(1) Schools shall furnish each student who 
successfully completes a preUcensing 
course an official certificate on a form 
prescribed by the Commissioner. A cer- 
tificate shall not be issued to a student 
prior to completion of all course rcquire- 



5i2 



5:5 IXORTH CAROLINA REGISTER June I, 1990 



PROPOSED RULES 



ments and the passing of the course's 
comprehensive final examination. 

(2) A certificate of prelicensing course com- 
pletion shall be issued for each course 
successfully completed by a student. A 
certificate presented at the examination 
site that indicates completion of more 
than one course shaU be h«44 invalid. 

(3) A certificate of prelicensing course com- 
pletion shall be valid for access to the ex- 
amination for 12 months. If an applicant 
for a license does not successfully pass the 
examination within 12 months, he shall 
again complete a prelicensing education 
course to be eligible for the examination. 

Statutoty Authority G.S. 58-33-30(d). 

.0705 LE.VD .\ND ASSISTANT INSTRLCl ORS 

(a) AU lead and assistant instructors shall be 
approved by the Commissioner in accordance 
with the provisions of this Rule. 

(b) A person desiring approval to teach preli- 
censing courses shall make written application to 
the Commissioner upon a fonn prescribed by the 
Commissioner. 

(c) Applications must be endorsed by the pro- 
gram director of the employing school. If the 
employing school is not currently approved by 
the Commissioner, an application for school ap- 
proval should submitted along with the apphca- 
tion for lead »f ar i r . i i T i tant instructor approval. 

(d) The Commissioner shaU approve an appli- 
cant as a lead instructor upon finding that the 
apphcant is recommended by an approved 
school, has submitted aU information required 
by the Commissioner, possesses good character 
and reputation, and possesses the appropriate 
quaUfications described in this Paragraph: 

(1) Life, accident and health: 

(A) Chartered Life Underwriter (CLU); or 

(B) Chartered linancial Consultant 
(ChFC); or 

(C) Fellow Life Management Institute 
(FLMI); or 

(D) Life Underwriter Training; Council 
Fellow (LUrCF); or 

(fi) Attorney (II B »f iUj^ Bf 

(E) f4^ Four years of experience as a fuU- 
timc employee or representative intciprct- 
ing or explainini; insurance policy 
contracts in the life, accident and health 
industry and a designation as: 

(i) Certified Fmployee Benefits Specialist 

(CEBS); or 
(ii) Life Underwriter Training Council 

Graduate (LUTC Graduate); or 



(iii) Fraternal Insurance Counselor 
(FIC);or 

(iv) Certified Financial Planner (CFP); 
or 

(v) I lolder of degree in insurance (asso- 
ciate or bachelors); or 

(F) (O) Three years of experience teaching 
life, accident and health preHcensing 
courses; or 

(G) fW^ Seven years of experience as a fuU- 
time employee or representative interpret- 
ing or explaining insurance policy 
contracts in the life, accident and health 
industry; or 

(II) fi^ A combination of training, experi- 
ence and qualifications that ;iTe substan- 
tially equivalent to those listed among 
R^ite .WO^ (d)(r)(A) throuuh fH) »f Ais 
Sootion 11 NCAC 6A .n705(d)( r)(A) 
through (Cj) to satisfy the Commissioner 
that the applicant is qualified. 
(2) Fire and casualty: 

(A) Chartered Property and Casualty 
Underwriter (CPCU); or 

(-B> ,\ttom e y (LI B w i-i^ Bf 

(B) (4^ Four years of experience as a full- 
time employee or representative interpret- 
ing or explaining insurance policy 
contracts in the fire and casualty industry 
and a designation as: 

(i) Associate in Underwriting (AU); or 
(ii) Program in General Insurance (INS); 

or 
(iii) Accredited Advisor in Insurance 

(/\i\I); or 
(iv) Associate in Claims (AIC); or 
(v) Associate in Risk Management 

(ARM): or 
(vi) Certified Insurance Counselor (CIC); 

or 
(vii) Associate in Premium Auditing 

(APA); or 
(viii) Associate in Insurance Accounting 

and Finance (AIAF); or 
(ix) Holder of degree in insurance (asso- 
ciate or bachelors); or 

(C) (-P^ Three years of experience teaching 
fire and casualty preHcensing courses; or 

(D) ffi^ Seven years of experience as a full- 
time cmploN'ce or representative inteniret- 
ing or explaining insurance policy 
contracts in the tire and casualty industr)'; 
or 

(E) (-P) A combination of training, experi- 
ence and qualifications that are substan- 
tially equivalent to those listed among 
feOe rQ:m- (d)(2)(A) throuah (4^^ »f Ow* 
Section H NCAC 6A .(>7n5(d)(2)(A) 



5:5 NORTH CAROLINA REGISTER June 1,1990 



333 



PROPOSED RULES 



throuah (D) to satisfy the Commissioner 
that the applicant is qualified. 

(e) The Commissioner shall approve an appli- 
cant as an assistant instructor upon finding that 
the applicant is recommended by an approved 
school, has submitted all information required 
by the Commissioner possesses good character 
and reputation, has taken and passed the state 
examination within the most recent two vears 
and possesses the appropnate qualifications de- 
scribed in this Rule: 

(1) Life, accident and health and or accident 
and health insurance: three years of ex- 
perience as a full-time emplo\ec or re pre - 
sentatise interpreting or explaining 
insurance polic\' contracts in the life, ac- 
cident and health industn'. 

(2) Fire and casualty insurance: three years 
of experience as a full-time employee or 
representative interpreting or explaining 
in-'Urancc policy contracts in the fire and 
casualty insurance industr>'. 

(3) Possesses qu;difications that are found by 
the Commissioner to be substantially 
equivalent to those described in Subpara- 
graphs (e)(1) and (2) of this Rule. 

(f) \n applicant for lead aft4 or assistant in- 
structor shall be approved for each course tauglit 
in the prelicensing curriculum. 

(g) Approsal of an mstructor for a school shall 
continue until cancellation b\ that school's pro- 
gram director, resignation by the instructor, re- 
\ocation or suspension by the Commissioner, or 
disappro\al or tennination of that school. 

(h) The Commissioner shall deny, revoke, or 
suspend the approval of an instructor upon find- 
ing that: 

(1) The instructor fails to meet the criteria for 
approval provided h\ these regulations; 
or 

(2) The instructor has failed to comply with 
the Commissioner s regulations regarding 
prelicensing courses or schools; or 

(3) The instructor's employment has been 
terminated by any school approved by the 
Commissioner on the grounds of incom- 
petence or failure to comply with institu- 
tional policies and procedures; or 

(4) The instiTictor provided false information 
to the Commissioner on any fonn or ap- 
plication; or 

(5) The instmctor has at any time had an in- 
surance license demed, suspended or re- 
voked by this or any other insurance 
department, or has ever been required to 
return a license while under investigation; 
or 



(6) The instmctor has obtained or used, or 
attempted to obtain or use, in any manner 
or form, examination questions; or 

(7) The instructor has failed to employ ac- 
ceptable instructional principles and 
methods. 

(i) In all proceedings to deny, revoke, or sus- 
pend approval of a lead or assistant instructor, 
the pro\isions of Chapter 150B of the General 
Statutes shall be apphcable. 

(j) When an instructor's approval is discontin- 
ued, the procedure for remstatement shall be to 
apply as a new instructor, with a statement of 
reasons that he is now eligible for reconsider- 
ation. The Commissioner may require an in- 
vestigation before new approval is granted. 

(k| An approved instructor shall infonn the 
Commissioner of any change in school affiliation 
by fihng an appUcation for instructor approval 
prior to instructing in the new school. 

Siatutoiy Authority G.S. 5S-33-30(dj. 

.0706 F'ROCTORS 

(a) .\11 proctors shall be approved b\- the 
Commissioner in accordance vv ith the provisions 
of this Rule. 

(b) ,\ person desiring to be approved as a 
proctor shall make written application upon a 
form prescribed b\' the Commissioner. 

(c) .Applications must be endorsed by the pro- 
gram director of the emploving correspondence 
school. If the school is not currently approved 
by the C~ommissioner, the application for school 
approval should be submitted along with the ap- 
plication for proctor approval. 

(d) I'he Comniissioner shall approve an appli- 
cant to monitor correspcmdence courses as a 
proctor upon finding that the applicant is re- 
commended by an approved school, has submit- 
ted all information required by the 
Commissioner, possesses good character and 
reputation, has provided evidence of successful 
completion of each correspondence course for 
which he is to be approved as proctor, and pos- 
sesses the appropriate qualifications described in 
n NCAC 6A .07r).S(dl(l) and [2j_ At^ ;4m*- 
gniph ^ L ' ach couri . i .' t+*f vs hich appro' , ul h 
r . ought: 

(4f Ht*s t lueo y e aro" L ' xpi. ' rienc e h* t4*t* lifer ae- 
cidont rt«4 liL ' alth insuranc e i iulu -. trv k+ 
proctor Itfer iiccuk ' nt ttfi4 h e alth uT ' Uninc e 
cour '' !i : e+ 

(4f Hrer thrL'ij year ' j cxporii-'ncL * w- t-l+e t+w rt«4 
cctr . ualty ini . uruncL ' induLitr/ to proctor fifi* 
rm4 ciir . ualty in - airance cour '. or . . 

(4-^ Po '' ^ ' e! . i^^j ' i qualification ', t-hftt- r«i? found hf 
Uw Commi ' j ' uonor k+ l*t» L . ubL . tiuitiuUv 



334 



5:5 AORTH CAROLL\A REGISTER June 1,1990 



PROPOSED RULES 



e quival e nt te thoRO der i oribod vpt Subpara 
graphs (tl)(l) aft4 (4) ef Owt^ Rule. 

(e) An applicant shall be approved for each 
course proctored in the prelicensing curriculum. 

(f) Approval of a proctor for a school continues 
until cancellation by that school's program di- 
rector, resignation by the proctor, revocation or 
suspension by the Commissioner, or disapproval 
or termination of the school. 

(g) A proctor's duties are prescribed by the 
Commissioner and a description may be ob- 
tained by writing to the North Carolina Depart- 
ment of Insurance, Agent Services Division, 
Prehcensing Education Section, Post Office Box 
26267, Raleigh, North Carolina 27611. 

(h) The Commissioner shall deny, revoke or 
suspend the approval of a proctor upon finding 
that: 

(1) The proctor fails to meet the criteria for 
approval provided by these regulations; 
or 

(2) The proctor has failed to comply with the 
Commissioner's regulations regarding 
correspondence courses or schools; or 

(3) The proctor's employment has been ter- 
minated by the school; or 

(4) The proctor provided false information to 
the Commissioner on any fonn or appli- 
cation; or 

(5) The proctor has at any time had an in- 
surance license denied, suspended or re- 
voked by this or any other insurance 
department, or has ever been required to 
return a license while under investigation; 
or 

(6) The proctor has obtained or used, or at- 
tempted to obtain or use, in any manner 
or form, examination questions; or 

(7) The proctor has failed to utilize an ac- 
ceptable level of perfonnance in oversee- 
ing a prelicensing course. 

(i) In all proceedings to deny, revoke, or sus- 
pend approval of a proctor, the provisions of 
Chapter 150B of the General Statutes shall be 
appUcable. 

(j) When a proctor's approval is discontinued, 
the procedure for reinstatement shall be to apply 
as a new proctor, with a statement of reasons that 
he is now eligible for reconsideration. The 
Commissioner may require an investigation be- 
fore new approval is granted. 

(k) An approved proctor shall infonn the 
Commissioner of any change in school affiliation 
by filing an application for proctor approval prior 
to proctoring in the new school. 

Statutory Authority G.S. 5S-33-30(d). 



iS otice is hereby given in accordance with G.S. 
I SOB- 1 2 that the N .C. Department of Insurance 
intends to amend rule(s) cited as 1 1 NCAC 10 
.1103. 

1 he proposed effective date of this action is Oc- 
tober I, 1990. 

1 he public hearing will be conducted at 10:00 
a.m. on July 3, 1990 at Third Floor Hearing 
Room. Dobbs Building, 430 N. Salisbury Street, 
Raleigh, N.C. 27611. 

\^ omment Procedures: Written comments may 
be sent to Pete Murd:a, P.O. Bo.x 26387, Raleigh, 
A.C. 27611. Oral presentations may be made at 
the public hearing. Anyone having questions 
should call Pete Murdza at (919) 733-3284 or 
Ellen Sprenkel at (919) 733-4700. 

CHAPTER 10 - KIRK AND CASUALTY 
DIMSION 

SKCTION .1 100 KAKK KILINGS 

.1 103 WORKERS' COMPENSATION 

The infonnation required by N.C.G.S. 
5y . 121.2n(h) NCOS. 58-36- 15(h) shall be pre- 
sented as follows: 

Note: If data required bv this Rule are not being 
collected or reported, or are not readily available 
to insurers prior to October J_^ 1^)'MJ, insurers shall 
commence collecting or reporting such data be- 
ginning January 2^ 1^**^)2. H certain data are not 
regularly collected thnnigh the statistical plan, a 
special call for such data to companies whose 
aggregate workers' compensation wntten prc- 
mii.im is at^ least three-fourths of the North 
Carolina premium may be substituted. 1 here- 
after, such required data that ha\e accnied shall 
be included in each filing until enough data are 
a\ ailabie to fulh satisfy this Rule. If in addititm 



to the full years of data specified m tH^r ef t4« 
bL ' low rL'quc ' jts, this Rule, more recent data of 
less than a full year i* are available, t4»t- such data 
shall also be pro\'ided. If updates to the infor- 
mation specified in this Rule become available 
before the close of evidence relating to the filing, 
the\ shall also be pio\ ided. 
( I ) North Carolina prc ' iiiiuin, !«* earned pre- 
miums at the actual and current rate level; 



losses and loss adjustment L'.vponL ' nco: ex- 
penses, each on paid and incurred bases 
without trendmiz or other modification for 



the expenence i 



^criod. includiim the loss ra- 



5:5 IS'ORTH C.4ROLIN.4 REGISTER June 1,1990 



335 



PROPOSED RULES 



tip anticipated at the time the rates were 
promuli^ated for the experience period: 

(a) Include premium, loss, and loss adjustment 

expense data from all companies writing 
North Carolina workers' compensation 
insurance, h* North Carolina r i hall h^ vpt- 
clud e d tft Ae F*te filing. In addition, if 
exposures are used in the calculation of ■ 
premiums at present rates, provide all 
a\ailable exposure data from these com- 
panies. If the cxpenence of any company 
that b** wntes more than one percent of 
the North Carolina workers' compen- 
sation written premium i* lias been ex- 
cluded from y*<* any rate level, trend, loss 
development, or insestment income cal- 
culations, identify t4+*(- the company and 
its lUiirkL ' t '. har e market share and provide 
an explanation for its exclusion. Also es- 
timate the aggregate mark e t i . hur e market 
share of other companies whose experi- 
ence is excluded from thooo such calcu- 
lations. 

(b) hiclude expense data from all companies 
wntina North Carolina workers' compen- 
sation insurance. If the cxpenence of any 
company of the t*+f> 5U largest (based on 
written premium) country"\vide writers of 
workers' compensation insurance is ex- 
cluded from any expense le\el calcu- 
lations, identify thr*(- the company and its 
market ' jhar e market share and pro\ ide an 
explanation for its exclusion. Also esti- 
mate the aggregate markot 'i haro market 
share of other companies whose cxpen- 
ence is excluded from such e xpt ' n '. e k" ie l 
calculations. 

(c) If any identifiable group of policies is ex- 
cluded from the calculation of classifica- 
tion differentials, describe those policies, 
indicate their market share. aft4 their pe*^ 
centage e+ t-hr» mark e t and pro\'ide an ex- 
planation for their exclusion. 

(d) Clearly describe all adjustments to premi- 
ums, losses, loss adjustment expenses, ex- 
penses, and exposures included in the 
tilini!. Show the unad|usted amounts to 
which ad|ustments were made, identity 
the specific adjustments. pro\'ide details 
on the den\ation and application of the 
adiustment t actors, and descnbe all intcr- 
mei.iiate calculations. 

(e) (-4+ Pr e mium ', ttt- currL'nt frrii* k'vol 44t+H br^ 

calculated. \V"henL" . er tm- level facti)rc . aw 
u -. ed. ; . how their derivation. Include ac- 
tual earned premiums and calculate 
earned premiums at present rates. .Mso 
indicate luns sucli calculations were 



produced, supply supporting documenta- 
tion for a sample of such calculations, and 
justify any aggregate factors used. 

(f) ^ 44^ I-stimate the amount of premium 

collected from t+»# expense con -. tant r . haU 
be ei i timated. constants. Pro\ide this 
premium in dollars, aft4 as a percentage 
of the standard earned premium, and as a 
percentage of net earned premium. If the 
percentage of premium collected in this 
manner is expected to change, estimate 
the extent of the change and pro\ide the 
details of this o i ntimation, calculation. 

(g) (4^ 44*<» Estimate the amount of additional 

premium collected because of the mini- 
mum premium nhall b* I ' luT i i i n. rule. 
Provide this premium in dollars, »ft4 as a 
percentage of standard earned premium, 
and as a percentage of net earned pre- 
mium. If the percentage of premium col- 
lected in this manner is expected to 
change, estimate the extent of the change 
and proN'ide the details of this e stimation. 
calculation. 

fgl Ijamed premiumi ' L ' haU includ e premium 
coll e cted from t4w L . pecific dii . eai . o loading. 
•14 di '. ear . e loading; ! hav e been exclud e d, 
pro' i ide a justification. 

(h) Provide the 44*e latest page 44 available 
wntten and earned premiums and 
market i . hiUL'i . market shares for the ten 
largest waters cy\_ North Carolina workers' 
compensation insurer; , h* North Carolina 
L . hall bt* pros ided. insurance. 

(i) Provide composite loss and premium in- 
formation from each c^ the latest two 
.Annual .Statements for which a-jL^regate 
data are available for the 5n lariiest wnters 
of North Carolina workers compensation 
insurance, including the following: 
(i) Lnden'.nting and Investment Hxhibit. 



Part 



\t: 



in) Indenvnting and Investment I'xhibit, 

Part 3^ 1 ine 16: 
(iii) North Carolina Pa'j 



14. I ine 16. 



(j) fH -H+r^ Provide to the extent p(^ssible the 
following infonnation on companies de- 
\iating from Bur e au the workers' com- 
pensation rates of the North Carolina 
Rate Bureau r . hall bt* included for each of 
the latest five a\ailable calendar \ears: 
(i) A list of aU deviating companies: 
(ii) Ihe estimated total standard premium 

written at deviated rates: 
(iii) The estimated percentage of the entire 
statewide standard premium written at 
deviated rates: 



356 



5:5 AORTH CAROLL\A REGISTER June I, I WO 



PROPOSED RULES 



(iv) The total amount of deviations in dol- 
lars; 

(v) The average percentage deviation for 
deviating companies; 

(vi) The average percentage deviation for 
all companies. 
(k) (^ The Provide to the extent possible the 
following information on company com- 
panies issuing dividends on North 
Carolina workers' compensation di' i idond 
practices '. hull b» inoludL ' d policies for 
each of the latest five calendar years: 

(i) A List of all companies issuing dividends; 

(ii) The estimated total premium from of 
companies issuing dividends; 

(iii) The estimated percentage of the entire 
statewide premium of companies issuing 
dividends; 

(iv) The total amount of dividends in dol- 
lars.; 

(v) The average percentage dividend issued 
by companies issuing dividends; 

(vi) The average percentage dividend issued 

by all companies. 

(Ir) Information from (+h* Annual Slatomont 

e« lo! . SL >' j rt«4 prumium -. •. hull be iiKlikk ' d. 

Pros idc ii uch inlormalion ii L'piiralL ' ly fof 

tbe latofit twe iVnnual StatomLMilfi fef 

si i liich aggrogato data » avdilabli. ' , includ 

i«g t4+e folltj' i ' i ing itL ' m ii BVt » compo ii itL ' 

ba ii ir i fw the t»f» ^ ' ■ sorkuri i ' compL ' ii 

f . ation inr i urcro ift North Caroluia: 
IjX i>v i i I I 1 :.^,. 1^. 

i\ \ \ p | , - t X I i n n 1 A- 

\ II J T TTTT ST I T T T VT I ' ' , 

\ 1 1 1 J 1 (.11 I ^ ' I t , I 1 1 I %.. TTTT 

(1) Ali policy yertf »h4 accident yeaf incurr e d 

^^^^ i 1 ■ 1 t ' fc * ■ . ■ J \.. \ ■ t-^ ♦ I ^ . > r t 1 ■ r^ i > V \^ ' t\\ 1^^^ T-\ »- 1 -\ 
ITTTTT? CITTTTr LI ^'\> Ki ITT 1 1 H. 1 1 1 1 1 I _^ !TTTTTTT l '\J I 'II.' 

s'idL ' d ift the aggrogalc aft4 ske- - . .e puralfd 
ift4-H- paid lo 'i'ie* : . , ca ^^e inouned 'i , rt«4 i«- 
currud btrt- i+h4- roportod lor . r i LT i . Provide 
the following information on losses and 
loss adjustment expenses: 

(i) 1 (^r each of the latest three a\ ailable ac- 
cident and calendar \ears, undeveloped 
and untrended losses aiul loss adiustment 
expenses; 

(ii) lor each rate level implemented in the 
latest three calendar \cars. the expected 
loss ratios that were anticipated m the 
implemetited rates; 

(iii) lor each accident and policy year in- 
cluded in the tiling, paid losses, case basis 
reserves, loss development, incurred allo- 
cated loss adjustment expenses (if col- 
lected separately fr(Mri losses), incurred 
unallocated (or combined allocated and 
unallocated) kiss adjustment expenses, 



applied trend factors, and trended incurred 

losses and loss adjustment expenses. 

(2) Credibility factor development and apph- 

cation. Provide all information related to 

the derivation of all credihilitv factors con- 



tained in the tiling, including the following: 
A4i information relating \» t+H* i ' doction ef 
the credibility factors containod ift the filing 
C i hall be provided including a coinplt ' t e de- 
' . i cription »f the methodology wse4 k* deriso 
the fact OP . . 

(a) A description of all data reviewed and all 
worksheets used; 

(b) A complete description of the methodol- 
oiiv used to denve these factors; 



(c) A description of alternative methodologies 
used or considered for use in the last three 



(d) A description of the criteria used to select 
a methodology; 

(e) Specific details on the application of these 
criteria in the selection of a methodology 
for this filing; 

(f) Details on the application of the met hod - 
olo'jv to this filing. 

(3) Loss development factor development and 
application on both paid and incurred bases 
and m both numbers and dollars ot^^ claims: 
(a) Provide all inloiTnation related to the der- 
ivation of oH loss development factors 
contained in the filinc, including the fol- 



lowinc: 



(i) A description of all data rev iewed and 
all worksheets used: 

(ii) A complete description of the method- 
ology used \o_ denve these factors; 

(lii) A descnption o[ alternative methodol- 
ogies used or considered tor use m the last 
three years; 



(iv) A description of the criteria used to se- 
lect a methodology; 

(v) Specific details on the aiiplicalion of 
these cnteria in the selecti(m o[ a meth- 
odoloszv for this tiling: 



(vi) Details on the application of the meth- 
odology to this tiling, 
(b) fa-) St* t+»t- k+v* d e velopment facloi '. e«ft 
be produced, the follovring Io*t^ data at 
succe ' . i' jive evaluation date ' . ^ '. hall be pro 
vided: 

(+) At Provide at least the latest five 
available five years of the aggivgate loss 
data described in Subparagraphs (.^)(b)(i) 
through (lii) of this Rule tor matching 



companies for all pairs of successive eval- 
uation dates. Also provide the corre- 



sponding loss development fictors and 



5:5 NORTH CAROLINA REGISTER June I, 1990 



337 



PROPOSED RULES 



five-year average factors derivable from 
these data. 



(i) fin Data on both a policy year and an 
accident year basis; 

(ii) fi+t^ Data separated into indemnity and 
medical only loo cos portions, as well as 
combined data; 

(iii) f+v) Data separated into paid, case in- 
curred, and incurred but not reported 
portions, as well as total locsoi . ; combined 
data; 

(-v-^ Reported indomnity, modicai only. a«4 
total claimo fof aii years aft4 evaluation 
dat e; ' , fof ' i vhich k»« information i^ pfo- 
> idod. 

(c) Prtnide for each of the loss amounts in 
Subparaizraph (3)(b) of this Rule, the 
corrcspondini; earned premiums, paid 
claim counts, incurred claim counts, and 
outstanding claim counts. 

(d) fb-> IvB- tfeert- t4+t* diffLM'ont dtfvelopniL ' nl prri- 

tcni ' j lȴ tvf*e e+' injup i' e*tft W tracud. tke 
folknsing k»** data afhi a dL" i cription t-4 ite 
donsation ■■ hall akt* be includod: 
(++ At- I'roNJde at least the latest ten 
a\ailablc te«- tmrt '. tatir . tical policy years 
of the incurred loss data described in 
Subparairraphs (3)(d)(i) throutzh (iil of 
this Rule from the Init Statistical Flan 
k*^?t tktfei for matching policies for all pairs 
of successive evaluation dates. Also pro- 
\'ide the corresponding loss development 
tactors and fi\e-\ car a\'eraL;e factors de- 
n\ able from the data. 



(ii-^ Cii -.e incuned kv ' ^o !. , numbor of claimo, 
standard ccu'nL ' d prL'mium. a«4 oamod e«- 
poour e o; 

(i) fHH Losses separated into indemnity and 
medical loooeo; portions, as well as com- 
bined data; 

(ii) f+v| Componoabk' claim c'.vpL'riL ' nco 
L osses separated into deaths, permanent 
totals, major permanent partials, minor 
pennanent partials, awd- temporar>' totals, 
and noncompensable medicals. 

fv) Current on lovi?! bc ' iicfit facloro feM^ L ' ach 
injury tvpe ^f4ff- b e t' . VL ' L ' n indL'mnity a«4 
medical; 

fv-H ^Mr»f each policy year. t4^ actual a' l X ' nige 
Vrrtee a«4 (+H* average ^vage after tl+e ap- 
plication fc4" aftv payroll limitaticm. 
f»H AH- inforuKition relating t+> t-l+e ■■ election 
ef At* le** d e selopment factor ' , - contained 
m y+e filing i . hull be provided including a 
complete d e-. cnption t4' t-he methodology 
U '- ed k* arrive a*- t4+e ■■ elected factor ;. a«4 
At* detail ' , , ef rt** opecinc application. 



(e) Provide for each of the loss amounts in 
Subparagraph (3)(d) of this Rule the cor- 
responding incurred claim counts and lor 
each of the policy \ears in Subparagraph 
(3)(d) of this Rule the aggregate earned 
exposures and standard earned premium. 

(f) Pro\ide for each of the polic\' periods in 
Subparagraphs (3)(b) and (3)(d) of this 
Rule the law amendment factors for ad- 
justing past losses to current benefit lc\els. 

(g) Include a descnption of the reasons for the 
differences between the policy \ear data 
provided in response to Subparagraphs 
(3)(b) and l3)(c) of this Rule and those 
pro\ ided in response to Subparagraphs 
(3)(d) and (3;i(e) of ihjs Rule. 

(h) I'roN ide the information in Subparagraphs 
(3)(b) and (3)(c) of this Rule for each of 
the 15 largest wnters of North Carolina 
workers" compensation insur.ince. 

(44 +^**f e ach e4- tfee Wvt kirg e-. t ' ■ vnt e r ;^ ef 
' ■ ' ■ orkero" compen '. iition iiT i Uranc e ift 
North Carolina, a otatemenl regarding a«¥ 
rei . ene strengthening e* v i eakening l-l+at- 
has occurr e d m tfee \st^ frv# y e ars shall be 
included. 

(4) Trending factor development and applica- 
tion: 

(a) I*ro\ide all infomiation related to the der- 
i\ation of aH trend lactors contained m the 
filing including the tollowinsJ: 
fi) A descnption o^. ill data re\iewed and 

all worksheets used; 
(ii) A complete description of the method- 
olo>:\ used to den\e these kictors: 



(iii) A descniition of altcmati\ e mctlnKlol- 
ogies used or considered lor use in t]ie last 
three \ears; 

(i\ ) A description of the criteria used to se- 
lect a methodoloiiv; 

(\') Specific details on the application of 
these catena in the selection of a meth- 



otloloLiN {or this filini; 



(\i) Details on the application o_f the meth- 
odoloizv to this tiliiTi. 
(b) fa-)- ?ve- Ar+t- a ' . anet^ t>4- possible trend fatr- 
tt+ftr m«y be caluated. provide Calculate 
the following calculations: trend lactors: 

(i) IndemnitN' and medical trend factor *?a4- 
cukitions factors based upon both on the 
latest fi\e a\ailable policy vcars of North 
Carolina policy y e ar paid and incuiTcd 
data; a«4 North Carolina accident ye«f 
data. 

(ii) Indemnity and medical trend factor eai- 
culations factors based upon countryviid e 
policy yeaf aH4 accid e nt \t^t# on the latest 
fne awiilable accident \ ears oi data; 



i3H 



5:5 NORTH CAROLINA REGISTER June 1,1990 



PROPOSED RULES 



(iii) Indemnity and medical trend factors 
based on the latest five available policy 
years of countrywide paid and incurred 
data; 

(iv) fiii^ Indemnity aft4 modical trend factor 
calculationn factors for individual states 
based on both » policy year aft4 a» aooi 
d e nt ye«f basis data and their reconcil- 
iations with the countp^'wide factors; 

(v) ft¥} Pef t4*e medical Medical trend fac- 
tors for individual states and for groups 
of iioparatc compilations fof fee schedule 
and non-fee schedule states based on both 
ft incurred policy year ftfi4 *» accidont waf 
basis, data and their reconciliation with 
the countPv wide factor; 

(vi) 



The 



factors 



in Subparatzraphs 
(4)(b)(iii). (4)(b)(iv), and (4)(b)(v) of this 
Rule based on accident \ car data, ii avail- 



able^ 

fb) rVli infonnalion relating to t+w r . L'lection 
ef t+H* trend factors contained m the filing 
shall be provided including a compluto 
description ef tbe methodolog;." uwd t© 
d e riv e t4*e select e d factors ftH4 the details 
»f ite specific application. 

(5) Changes in premium base and exposures. 

(a) Info nnat ion BVt th# distribution by 4ie ef 

policy shall be provided st* tl+t+t- tl+e effects 
ef premium discount, t4iK» enpenso con 

t~ i -"^ T-i * ■ » «^ ■ ■ t 1-1 . Y «-n t «-i 1 r-»i 1 > »Ti «-* »-. t«Ti « 1 I «->-! J--1 1 I f 1 ■ ■■ 1 T-i 
rTTTTTTTy lU lU 1 1 I^J ITTTTTTTTTTTTTT I 'II^IIIILIIII I U I^ CTTTT 

be re' i ievred. This inforniiition shall m- 
clude b'or the intervals listed in this Sub- 
paragraph, proside the number of North 
Carolina workers compensation policies 
and dollar amount *# their aggregate pre- 
mium m Noith Carolina tor the latest 
available five policy years. Provide this 
information separately for stock and non- 
stock companies and for all companies 
combined: using Ae foilov ii ing premium 
f*» distribution SO %\_ - $99. $l00 - $199, 
$200 - $299, $300 - $499, $500 - $999, 
$1,000 - $2,999, $3,000 - $4,999, $5,000 - 
$9,999, $10,000 - $24,999, $25,000 - 
$49,999, $50,000 - $99,999, $100,000 - 
$249,999, ftft4 ewf $2 IQ^iOQ. $250,000 - 
$499,999. and over $4')9.t)99. 

(b) Describe any Awy- countrywide distrib- 
utions of number of policies or premium 
by layer that i* are used in the filing, shall 
be described. Also pro\idc details of how 
such distributions have been used in the 
rate filing and a description of any adjust- 
ments that have been made to tbe distrib 
utions. them. 



(c) Provide the following estimates of the av- 
erage premium discount for each of the 
latest five available policy years: 

(i} That using the North Carohna distrib- 
ution of policies contained in Subpara- 
.graph (5) (a) of this Rule; 

(ii) 1 hat using a c(Hintr\\vide distribution 
of policies; 

(iii) I hat using the North Carolina distrib- 
ution of policies contained in Subpara- 
graph (5)(a) of this Rule adjusted for its 
exclusion of the portions of interstate 
policies not located in North Carolina^ 
In making this adjustment calculate and 
take into the account the aggregate intra- 
state portions of those policies making up 
the countrywide distribution in Subpara- 
graph (5)(c)(ii) o{ this Rule. 

(d) ft^ -1-be changes m t4*e stateside average 

' i seekly ssage fof t4*t* latest five cal e ndar 
years j. hall »!«* be included a* weli at^ e^ 
timated changes during (+k» period ' ■ shon 
t4*e rater . wtH- be ift e ff e ct. Pro\ide the 
following in to nnat ion on exposure trends: 

(i) I he statewide a\erage weekly wage for 
the latest five a\ailable calendar years; 

(ii) The statewide a\erage weekly wage for 
the latest ten available policy \ears with- 
out the application of a pa\roll limitation; 

(iii) The statewide average weekly wage for 
the latest ten available p(>licv \'ears after 
the application of a pa\ roll limitation; 

(iv) I he estimated statewide aserage weekly 
wage for the calendar and policy years 
during which the rates will be in effect. 

(6) limiting factor de\ek)pment and applica- 
tion. Information Pro\ ide information on 
the following items: shall be pros ided: 

(a) Limitations on losses included in the sta- 
tistical data used in the filing; 

(b) Limitations on the extent of the rate level 
change; 

(c) Limitations on the extent of classification 
rate changes; 

(d) Any other limitations applied. 

(7) 0\erhead expenses, expense de\elopment 
and the application of commission and bro- 
kerage, other acquisition expenses, general 
expenses. t:ixes. licenses, and fees: 

(a) AH- information r e lating k* the derivation 
ef tl+e e xp e nse provisions contained i+t t4+e 
filing shall be pros iti e d including a- com 
plete description »l t4+e metiiodology us e d 
t» derive the selected provisions »«4 Ae 
details o» it* '. pecific aj^plication. Pro\idc 
all infonnation related 




of all expense pro\isions contained m t_lie 
filinu includint; the followiniz: 



5:5 NORTH CAROLINA REGISTER June I, 1990 



339 



PROPOSED RULES 



(i) A description of all data reviewed and 

all worksheets used; 
(ii) A complete description of the method- 

olosrs' used to den\'e these factors: 
(iii 



A description of alternative methodol- 
ogies used or considered for use in the last 
three \ears; 



(iv) A description of the criteria used to se- 
lect a methoi-lologv. 

(v) Specific details on the application of 
these cntcna in the selection of a meth- 
(Hloloev tor this filing; 

(\-i) Details on the application of the meth- 
odologv to this filing. 
{h^ -H+e f i ling >. hiill includL' L . upport t+*f c44 (4» 
oxpen '^e . trHrr »«4 profit pros i -. uuTJ l+*f (+«» 
propo 'ie cl ruto '. , under both A<* cuiTcmt 
aft4 propor .e d e xp e n -.e pnigruinr . . I'xpUiin 
why ther . L' pros i ' .non ' : . rwe iippro|iri;ittf fof 
*H- typL ' !) h4' in^ ' Uranco companiL" ^ . 

(b) ftr) '+iH* Pro\ide a companson of the pro- 

posed expense provisions i . hTiU U* com 
part ' d to with those composite pro\ isions 
for the 50 largest wnlers of North 
Carolina workers compensation insur- 
ance included in the latest a\'ailable In- 
surance Hxpense Exhibit, U* u ith those 
same composite pro\isions included in the 
preliminar>' data underlying the next such 
Exhibit (if available), and to with those 
pro\isions in the latest available CaU for 
19xx Calendar \'ear Data by State for 
North Carolina. ["^t^ . trib e swy adju -. l 
mcntf i »f countP i SsidL ' data to rc ' llcct 
North Carolina conditionc t*H4 prosida 
A* dt- ' tail ' ' . of f+k» und e rlsing calculation ' .' . . 
if tkh* propo^ i L ' d pros i '' ion ;. differ from 
thtv , L ' indicated l>¥ th# data, pros ide <*» 
e xplanat i on. 

OH- boss' propo '. ed allossance '. fof expeiT . e - j 
ttfe res iess e d each ve^f bv commilleo ' . ' of 
tht» National Council oo Compen '. alion 
Insurance ttoti t4*e Norlh Carolina Rate 
Bureau. 

fo^ U Hoy b4" tf+e collected lo^i^ tk+trt include - i 
taxe '. Of a ' . .' . ' e ;''' ment ' . ' of Hoy- Is pe. (4+e t4ol- 
k+f amount t-4 '. uch taxe -. of a '.'i e '.;. m e nt!i 
•' hall l*e calculated. 

ff} 44*t^ detail ' - , of tfte d e nsation of tf+r» trtt 
multiplier ^ . hall bf prosided. 

(c) (-^ fdr each of the ten largest writers of 

North Carolina workers' compensation 
insurance, m Nuilh Carolma. pro\'ide a 
statement regarding any oxpeu '. e cutting 
activities affecting expense or senice levels 
undertaken in the last three years, i . hall 
bt» included. 



(8) The percent rate change; 

(a) ft« l^rovide the overall statewide rate 
change, 4«tW bt* r . hossn aft4 as well as the 
amount of the change attributable to each 
of the following: loss experience, a mod- 
ification of the trend factor, a change in 
expense provisions, law amendments, a 
change in the tax provision, a change in 
the assessment provision, and any other 
factors. 

(b) 44»«» IVovide the rate changes for each in- 

dustry group and for each classification. 
shall iiko be f . hossn. 

(c) If the rate changes eventually implemented 
difter frc^m those prtn ided in the filing, 
submit a supplement to the filing that de- 
scnbes the implemented changes and the 
modilications made to the filing to 
produce them. This supplement shall be 
submitted as soon as possible alter a de- 
cision is reached to implement rates o ther 
than those that were (inginallv filed and 
in any case no later than the first imple- 
mentation date ot the rates. 

(*5) l'ropo ''c> d rat e'. . AA^ I inal proposed rates: 

(a) Provide the proposed rates for each clas- 
sification. ; . hall be included. 

(b) If the rates eventualh implemented differ 
frtmi those pro\ idcd in the liling. submit 
a supplement [o the liling that describes 
the iini")lemented rates in the same detail 
as descnbed m Subparagraph (*-))( a) o[ this 
Rule. I his supplement shall be submitted 
as soon as possible alter a decision u^ 
reached to implement rates i^her than 
those that were originally filed and m :in\ 
case no later than the lirsi implement, ition 
date of the rates. 

(10) Investment earnings, consisting of invest- 



ment income and realized plus unre.ili/ed 
capital gains, from loss, loss expense, and 
iine.irned premiuin reserves: I nlormation 



evft anticipated ins e-. tm e nt incom e h- nece '. 
to e ' Uabli '. h t4+e pros i '. ion fof uiul e r 



ssriting profit fm4 conting e nci e'. io tkh* ratoo. 
(a) Inlormation oo Calculate the amount of 
investment income earned on loss, loss 
expense and unearned premium reserves 
from North Carolina workers' compen- 
sation policies (as a ratio m- relation to 
both net and standard earned piemium tof 
sS ' Ork e r ; " . compeu '. alion io North CaioliiKi 
shall be ccilcukited premium) for each of 
the latest five avaikible calendar vears and 
e '. limated estimate that income for the 
current year and tor all v ears dunng which 
the proposed rates wM are expected to be 
in eflect. Provide the d e nsaluMi details 



340 



5:5 i\ORTH CAROLINA REGISTER June L 1990 



PROPOSED RULES 



(b) 



(c) 



of ■■ uch all calculations, *» JotuLl including 
the amount of the composite reserves of 
each type at the beginning and end of each 
of the ' jpocifiod latest five available calen- 
dar years. Also descnbe and justify all 
assumptions used in such calculations. 
Information Provide information on the 
estimated average length of time that 
elapses between the occurrence of a 
compensable accident in North Carolina 
and the payment of a claim r . hall be {»fe- 
vidod. on that accident. The average 
shaU be a weighted a\erage based on size 
of claim payments. Indicate Fstimate 
how the length has changed o\er the k»t- 
latest ten a\ailable calendar years. 
4^ C' l aluatu rc ' c e nl iu '. ur e r profitability, 
compo 'i iic * information from Ae Annual 
Stat e mt ' nt ft*f (-he k*p -^ ' i sorkL ' n . ' com 
pijU j iation ini . urL ' r ' i m North Carolina '. hall 
be includL ' d. I'ro\idc (4*e folio v i ing com- 
posite asset. liahilitN . and income infor- 
mation from each of the latest two 
/Vnnual Statements for which aggregate 
data i* are a\ailable tor the 50 largest 
writers of North Carolina workers' com- 



pensation insurance, including the follow- 
ing (in m- the same format and detail as 
the exhibits in individual company stat i; 
mcnt !. : statements): 
(i) Page 2 (As.sets); 
(ii) Page 3 (Liabilities, Surplus and Other 

Funds); 
(iii) Page 4 (Lmderwriting and ln\'estment 

Exhibit); 
(iv) Sclu ' dulij V- •.e ction ;. cl e iiling ' ■ ' ■ ith 

workor i j' ctmip e n - uition: 
(iv) fv^ Insurance l:.\pense l-'.\.hibit Part II, 
Column 16. 
(11) Identification »rt4 CL ' rtification ^ Statir . 
tical Pkmy . . of applicable statistical plans 
and pro 'jams and a certification o[ compli- 
ance with them: 

(a) Att Identitx" all statistical plans used or 
consulted in preparing this filing i . hall be 
idu'iitiliod. i\l; . o and describe the data 
compiled by each plan. 

(b) A Provide a certification that there is no 

e\idcnce known to the Bureau or to the 
statistical agencies in\dhcd that the data 



that wr» were collected 



irdance with 



(c) 



such statistical plans and ulilii'.od were 
used in the rate tiling are not true and ac- 
curate representations of each company's 
experience to the best of rt-r that compa- 
ny's knowledge, r . hall c4m* be prosidt ' d. 
Provide general descriptions of the editing 
procedures used to \enf\ that the data 



were collected in accordance with the sta- 
tistical plans, and concise summaries of 
the errors unco\ered bv such editing pro- 
cedures, and of the adjustments and cor- 
rections implemented. 
(12) Investment liarningf . e« Capital ttft4 S+if- 
pluc. earnings on capital and surplus: 
Given the selected underwriting profit and 
contingency loading contingencies pro\'ision 
contained in the filing, indicate the resulting 
rates of return (including consideration of 
investment income) on equity capital, on 
statuton. surplus, and on total assets. *«- 
eluding con t. id e ration h4 insL ' i . tment income 
shall be calculat e d. Show the derivation of 
all factors used in producing these calcu- 
lations and pros ide ju '. tification t4*»t- th e i . e 
rater . e4 return ttfe rear . onable »ft4 foifr jus- 
tify the fairness and reasonableness of these 
rates of return. 



(13) Le\el of Capital Surplur . Needed. Te 
calculate return '. «->«• capital i+«4 '. uiplu '. . (4*e 
follo' i i i ing information vhall be provided. 
capital surplus needed to support premium 
wntings without endangcriniz the sol\enc\ 
of member companies: 

(a) i\ggr e gate Provide aLinregate premium to 

surplus ratios for the latest t+ve ten a\ail- 
able calendar years for c41- those companies 
wnting North Carolina wcirkers' compen- 
sation insurance h* North Carolina; dur- 
ing that entire period; 

(b) lir . timate '. Pro\ ide estimates of the compa- 

rable ratios for aU com|ianies w riling 
North Carolina nonlleet pinatc passenger 
aiitomobile insur:ince tor oU t4+e sears 
dunng w hich the proposed rates w44i are 
expected to be in clfect. 

(c) Pio\ide information on the amount of 
surplus needed to support the writing of 
N^irth Carolina wt^rkers compensaticm 
insurance. taking into :iccount the 
nskiness of the line. Descnbe the as- 
sumptions used in the dernation of that 
a mount. 

_ 'ro\ ide all intbrmation relating to any 
explicit or implicit alKK'ation ol. surplus 
by state and b\ line undertaken in the til- 
ing, including the following: 

(i) A descnption of all data ie\ iewed and 
all worksheets used: 

(ii) A compk'tc descripti(m of the method- 
ology' Used to produce this allocation: 

(iii) A descriptR)n of allernali\e methodol- 
ogies used or considered for use in the last 
three \ears: 



(d| 



(iv) A description of the criteria used to sc^ 
lect a methodologN'; 



5:5 NORTH CAROLINA REGISTER June 1,1990 



341 



PROPOSED RULES 



(\) Specific details on the application of 
these cnteria in the selection of a meth- 
odoloizv for this filing; 
(\i) Details on the application of the meth- 
(hIoIohv to this filing. 
(14) OtluT I nformation. Such other informa- 
tion that may be required bv any rule 
adopted by the Commissioner: 

(a) Information Pro\ide information on oortain 

the folknving aspects of Workon:/ Com 
pon^ation I ndividual Ri '. k Ratini; IManD 
i . hiill t>^ provid e d. tw t4w foUovring 
itt ' iiT . . include workers' compensation in- 
di\idual risk rating plans, including an 
explanation of their purpose and a de- 
tailed description of their derivation: 

(i) Expected loss rate; 

(li) D-Ratio; 

(iii) Excess loss factors; 

(iv) Excess loss adjustment amounts; 

(v) Table of weighting and ballast values. 

(b) Att infonnution relating to- tfee deiisation 

t4' t+K* profit »ft4 contingency loading 
contiiined m t4*^ filing r . hall b^ provided 
including » complete dec . cnption ©f A* 
methodology ur . ed *«• arri' i o at- tfee L ^ olected 
loading rtft4 th<* details ef i** specific ap- 
plication. Provide all information relating 
to the profit and contingencies pro\ision 
contained in the filing, including the fol- 
lowing: 

(i) A description of all data reviewed and 
aU worksheets used; 

(ii) A complete description of the method- 
ology used to deri\'e this pro\ision; 

(iii) A description of alternative mcthodol 
ogies used or considered for use m the last 
three years; 



i'w) A descnplion of the criteria used to se- 
lect a methodology; 

(\) Specific details on the application of 
these cnteria in the selection of a meth- 
odologN' lor this filing; 

fvi) Details on the application of the meth- 
odologN" to this filing. 

(c) Agendas Include copies of all agendas and 

minutes of meetings of the North 
Carolina Rate Bureau affecting the filing, 
shidl be included as wcU as a List of all at- 
tendees at these meetings, their titles, and 
their atfiliations. 

(d) Va\ m e nts Describe all payments made to 

MVr oth e r ail consultants (including law- 
yers, actuaries, and economists) related to 
this filing. fH+d Ae previous t*fte eft 
i i vorkers compensation shall be described. 
If pa\ments afe ftt-4 cannot be specificaUy 



identified as related to individual partic- 
ular fdings, estimate tfee charges, them, 
(e) Identify and describe all changes in meth- 
odologies from the pre\ious North 
Carolina workers' compensation rate fil- 
ing. ]f any collected or reported data re- 
quired by this Rule are pro\ided within 
30 da\s after the initial submittal of a fil- 
ing, that data shall be made a part of the 
filing, provided the initial submittal ac- 
knowledges that it is incomplete and 
identifies specifically what further data are 
to be submitted within the time permitted. 
No filing otherwise complete shall be 
deemed to be proper until such time that 
all data required bv this Rule have been 
submitted. 

Statutoryr Authoriiy G.S. 58-2-40: 58-36-15(h). 



l\ ot/'ce is hereby given in accordance with G.S. 
J50B-J2 that the .\.C. Department of Insurance 
intends to adopt rules cited as 1 1 .\CAC J IB 
.0601 - .0614. 

1 he proposed effecti\'e date of this action is Oc- 
tober I. 1990. 

1 he public hearing will be conducted at 10:00 
a.m. on July 5, 1990 at Third Floor Hearing 
Room. Dobbs Building. 430 .\'. Salisbury Street, 
Raleigh. S.C. 27611. " 



m the last (_^, 



omment Procedures: Written comments may 
be sent to .11 Barham. P.O. Box 26387, Raleigh, 
.V.C. 27611. Oral presentations may be made at 
the public hearing. Anyone having questions 
should call Al Barham at (919) 733-5631 or Ellen 
Sprenkel at (919) 733-4^00. 

CH.\PTER 11 - FINANCIAI. FA ALL ATI ON 
DIMSION 

SLUCILMTKR I IB - SI'ECL\L PROGRAMS 

SECTION .0600 - WORKERS' COMPENSATION 
SELF INSL RAN CE 

.0601 DEFINLFIONS 

As used in this Section: 

(1) "Act" means Chapter 97 of the North 
Carolina General Statutes, as amended. 

(2) "Certified audit" means an adult upon 
which an auditor duly qualified to practice 
as a public accountant or certified public 



.U2 



5:5 NORTH CAROLINA REGISTER .June 1,1990 



PROPOSED RULES 



accountant expresses his professional opin- 
ion that the accompanying statements fairly 
present the fmancial position of the em- 
ployer or of the group, in conformity with 
generally accepted accounting principles as 
considered necessary by the auditor under 
the circumstances. 

(3) "Commissioner" means the Commissioner 
of Insurance or his authorized represen- 
tative. 

(4) "Corporate surety" means an insurer au- 
thorized by the commissioner to write surety 
business in North Carolina. 

(5) "Employer" means a self-insured individ- 
ual employer. 

(6) "Fund year" means that elected period of 
coverage, up to 12 month in duration, pur- 
suant to which a group self-insurer extends 
coverage to its members. 

(7) "Group" means a self-insured group of 
employers. 

(8) "Loss fund" means that portion of net or 
standard premium, exclusive of past due 
balances deemed to be delinquent, that cov- 
ers the retention of liability for a self-insurer 
under the terms of an aggregate excess in- 
surance contract; and means, in the absence 
of an aggregate excess policy, that portion 
of net or standard premium, exclusive of 
past due balances deemed to be delinquent, 
that is allocated to pay claims. 

(9) "Manual premium" means premium de- 
termined by multiplying the annualized 
payroll amount, segregated into the proper 
workers' compensation job classifications, 
by the applicable manual premium rates 
approved for use in North Carolina. 

(10) "Self-insurer" means either a self-insured 
individual employer or self-insured group of 
employers. 

(11) "Service company" means a business that 
has contracted with an employer or group 
for the purpose of pro\iding any or all ser- 
vices necessary to a self-insured program. 

(12) "Surplus" means all other assets a loss 
fund has on hand that are in excess of all 
loss reserves and actual and contingent li- 
abilities, including general business expenses. 

(13) "Trustees" means the governing body of 
a group that is elected by its members for 
stated tcnns of office to direct the adminis- 
tration of a group; and whose duties include 
responsibility for approving applications for 
new members of such group. 

(14) "Trustees' fund" means any monetary 
fund under the control of the board of trus- 
tees of a group that is not part of the loss 
fund or that is not set aside to pay claims. 



Statutory Authority G.S. 97-93. 

.0602 ADMINISTRATION - ALL 
SELF-INSLRERS 

(a) Each self-insurer, as a condition of the au- 
thority to self-insure, shall provide proof of 
compliance with the provisions of this Section 
regarding its ability to operate a program of self- 
insurance, either through in-house capabilities or 
servicing companies. 

(b) Every self-insurer shall make provision for 
competent persons to administer and adjust 
claims. 

(c) If a self-insurer contracts with a service 
company, the commissioner may use the service 
company as an intermediary in his dealings with 
the self-insurer if the commissioner determines 
that this will result in a more rapid and accurate 
flow of information from the self-insurer and wiU 
aid in the self-insurer's compliance with this 
Section and the act. 

(d) Each self-insurer contracting with a service 
company shall notify the Commissioner within 
30 days after the contract execution. 

(e) Each self-insurer and service company shall 
maintain its records in such manner to enable the 
Commissioner or any designated auditor to \erify 
the accuracy and completeness of all reports and 
documents that are submitted to the Commis- 
sioner pursuant to this Section, as well as all re- 
cords and reports necessary to evaluate the 
financial solvency of the self-insurer and its abil- 
ity to meet its obligations under the act. Such 
records shall be open to inspection by the Com- 
missioner during regular business hours. Such 
records shall he retained for a period of time suf- 
ficient to ensure their a\ailability for audit pur- 
poses. In the absence of other guidelines 
established by the Commissioner, all records 
shall be retained according to the schedule 
adopted by the Commissioner for insurers. The 
location of these records shall be within North 
Carolina and shall be made known to the Com- 
missioner as necessary for audit purposes. A 
self-insurer may keep records outside of North 
CaroUna; provided, that the self-insurer shall 
make such records available for inspection within 
North Carolina within ten days after any request 
for inspection by the Commissioner. If a self- 
insurer has contracted with a service company for 
claims handling, the self-insurer's claims tiles and 
related records may be located at the offices of 
the service company. 

(f) Each self-insurer's and service company's 
records may, in the discretion of the Commis- 
sioner, be audited. If ordered, such audits shall 
be performed by accountants or auditors accept- 



5:5 NORTH CAROLINA REGISTER June 1,1990 



343 



PROPOSED RULES 



able to the Commissioner. The cost of such au- 
dits shall be borne by the party examined. 

(g) After each audit conducted, a written report 
shaU be prepared and submitted to the Commis- 
sioner with a copy to the self-insurer or service 
company, and such report shall be a part of the 
annual review for compliance with this Section. 
Any deficiencies cited by the audit report shaU 
be considered in determining whether there may 
be grounds for the suspension, revocation, or 
nonrenewal of the authority to self-insure. 

Statutory Authority G.S. 58-2-145; 97-93. 

.0603 EXCESS INSURANCE POLICIES - .\LL 
SEI.F-INSl KERS 

(a) Any excess workers' compensation insur- 
ance policy required by and submitted in ac- 
cordance with this Section shall be undcrvvritten 
by either a licensed insurance company or an 
approved surplus lines insurance company. 

(b) No policy of e.xcess insurance issued or re- 
neucd after October 1, 1990, shaU be recognized 
by the Commissioner in considering the ability 
of a self-insurer to fullill its financial obligations 
under the act unless such policy provides for at 
least 30 days written notice of cancellation, by 
registered or certified mail, return receipt re- 
quested, to the other party to the policy and to 
the Commissioner. 

(c) .\11 self-insurers shall file copies of any ex- 
cess insurance binders, policies, certificates, or 
any other evidences of coverage with the Com- 
missioner upon the request of the Commissioner. 

Statutory Authority G.S. 58-2-145: 97-93. 

.0604 KEl'OR IS - .\I.I. SELI -INSURERS 

(a) Fach self-insurer shall submit to the Com- 
missioner payroll infonnation for the purpose of 
tax assessment as rccjuircd by this Section. The 
Rules, classifications, and rates as set forth in the 
most recently approved workers' compensation 
and employers' liability insurance manual gov- 
erns the audits of payrolls and the adjustments 
of premiums. Payroll information shall be sub- 
mitted summarized by classification, bach self- 
insurer shall maintain true and accurate payroll 
records. Unless payroU records are maintained 
in such manner that a true and accurate identifi- 
cation and division by employer or group mem- 
ber departments or divisions or occupational 
classifications can readily be detennined for 
proper rating, the entire payroll of that employer 
or group member shall be presumed to be within 
the classification to which the highest workers' 
compensation insurance rate is applicable. 



(b) Each self- in surer shall, within 90 days after 
the end of each calendar year, file with the com- 
missioner a statement of total workers' compen- 
sation benefits paid by the self-insurer during the 
reported calendar year, as well as total future li- 
ability of all open claims, regardless of the dates 
of accidents. 

(c) Each year every self-insurer shall file state- 
ments of financial condition with the Commis- 
sioner. These statements must be certified 
audits, except that a self-insurer may submit 
noncertified audit reports if an owner, partner, 
or corporate officer of the employer or group at- 
tests to their being true and correct. These 
statements shall, at a minimum, comprise a bal- 
ance sheet, profit and loss statement, and a 
statement of change in loss fund position. Non- 
certified interim financial statements may be re- 
quired by the Commissioner at the end of any 
fiscal quarter or any calendar month whenever 
he has reason to believe there has been a deteri- 
oration in the financial condition of a self-insurer 
that adversely affects the self-insurer's ability to 
pay expected losses. 

(d) Extensions may be granted by the C?om- 
missioner for good cause. 

Statutory Authority G.S. 58-2-/45: 97-93. 

.0605 DEPOSITS OR SL RETY BONDS - .ML 
SELF-INSIRERS 

(a) In addition to cash, deposit funds that are 
acceptable under this Section as a security de- 
posit are U.S. Go\ernment bonds, notes, or bills, 
that are issued or guaranteed by the United States 
of America; money market funds that are in- 
vested only in U.S. Government or U.S. Gov- 
ernment agency obligations that have a maturity 
of one year or less; certificates of deposit issued 
by duly chartered commercial banks or thrift in- 
stitutions and that are fully protected b)' the 
Eederal Deposit Insurance Corporation or the 
Federal Savings and loan Insurance Corpo- 
ration, or any successor entity; surety bonds in a 
form acceptable to the Commissioner and issued 
by a corporate surety; or such other in\'estments 
that are appro\ed by the Commissioner. 

(b) All bonds or securities that are posted as 
security deposits shall be \alucd annually at 
market value. In the event market value is less 
than face \aluc, the Commissioner may require 
that additional securities be posted by the self- 
insurer. In making such determination, the 
Commissioner shall consider the self-insurer's fi- 
nancial condition, the amount by which market 
value is less than face value, and the likelihood 
that such securities will be needed to provide 
benefits. 



344 



5:5 i\()RTH CAROLLWA REGISTER .lime L 1990 



PROPOSED RULES 



(c) Securities deposited under this Section shall 
be assigned to the Commissioner, his successors, 
assigns, or trustees, pursuant to a legal document 
that is acceptable to the Commissioner and that 
renders such securities negotiable by the Com- 
missioner. In the event a self-insurer is in de- 
fault, the Commissioner may sell or collect, or 
both, such amounts that will yield sufficient 
funds to meet the self-insurer's obligations under 
the act. Interest accruing on any negotiable se- 
curity deposited under this Section shall be col- 
lected and transmitted to the self-insurer provided 
that the self-insurer is not in default. As used in 
this Paragraph "default" means the inability or 
failure to make timely payments of any awards 
or other disbursements required pursuant to the 
act. 

(dj All deposits shall remain in the custody of 
the Commissioner until all obligations of the 
self-insurer have been fully discharged, at which 
time the Commissioner shall return the deposits 
to the self-insurer. 

(e) No judgment creditor, other than a claim- 
ant entitled to benefits under the act, has a riglit 
to levy upon any of a self-insurer's deposits made 
under this Section. 

Statutory Authority G.S. 97-93. 

.0606 SECL RIIIKS WITHOR.WVAI. OR 

EXCH.WGE - ALL SELK-INSLRK.RS 

Any securities held by the Commissioner may 
be exchanged or replaced by the self-insurer with 
other securities of like nature and amount as long 
as the self-insurer is solvent. No release shall be 
effectuated until replacement securities or bonds 
of an equal value have been substituted. Any 
surety bond may be exchanged or replaced with 
another surety bond that meets the requirements 
of this Section, provided 30 days advance written 
notice is given to the Commissioner. Whenever 
a self-insurer ceases to self-insure or desires to 
replace securities with an acceptable surety bond 
or bonds, he shall so notify the Commissioner; 
and may recover aU or a portion of the securities 
deposited with the Commissioner upon posting 
in lieu thereof an acceptable special release bond 
issued by a corporate surety in an amount equal 
to the total value of such securities. The special 
release bond shall cover all existing liabilities un- 
der the act plus an amount to cover future loss 
development; and shall remain in force until such 
time as all such obligations under the act have 
been fully discharged. 

Statutoty Authority G.S. 97-93. 

.0607 APPLICATION -E.MPLO^ERS 



(a) Each employer desiring to self-insure shall 
make appUcation to the Commissioner for such 
authority on a form prescribed by the Commis- 
sioner. This apphcation shall be filed with the 
Commissioner at least 60 days prior to the de- 
sired effective date of self-insurer status. The 
application shall contain answers to all questions 
propounded and shaU be a sworn statement. 
Until all requested data has been filed, an appU- 
cation is incomplete. 

(b) In addition to the filing of the application, 
compliance with all of the following is required: 

(1) The applicant shall provide the Commis- 
sioner with certified statements of fman- 
cial condition of current origin and the 
two next most recent years including, at a 
minimum, a balance sheet, a profit and 
loss statement, and a statement of change 
in loss fund position, prepared on the ba- 
sis of generally accepted accounting prin- 
ciples consistently apphed. Such 
statements may be noncertified if the em- 
ployer is a sole proprietorship, partner- 
ship, or corporation, and if such 
statements are attested to by an otTicer or 
owner thereof who beneficially owns more 
than 50 percent of the equity in the busi- 
ness. Public employers, including pubhc 
nonprofit employers, may furnish a copy 
of current year budget or audit report in 
lieu of a certified fmancial statement. 

(2) Specific or aggregate excess insurance, or 
both, with pohcy Umits and retention 
amounts acceptable to the Commissioner, 
may be required for each applicant. 

(3) liach applicant shall satisfy the Commis- 
sioner that either it has, within its own 
organization, ample facilities and compe- 
tent personnel to administer and adjust 
claims, or shaU contract with a service 
company to provide these services. 

(c) Only an applicant whose modified workers' 
compensation insurance premium in North 
Carolina has reached one hundred thousand dol- 
lars ($100,000) per year and whose total fixed 
assets amount to five hundred thousand doUars 
($500,000) or more is eligible to apply for au- 
thority to self-insure. For good cause shown, the 
Commissioner may waive the requirement on 
fi.xcd assets or minimum premium volume. In 
considering the financial strength and licjuidity 
of the applicant to comply with the act, the 
Commissioner may consider, among other 
evaluative criteria, the appUcant's: organizational 
structure and management background; profit 
and loss history; source and reliability of financial 
information; compensation loss history; number 
of employees; claims administration; excess in- 



5:5 NORTH CAROLINA REGISTER June I, 1990 



345 



PROPOSED RULES 



surance; access to excess insurance markets; ratio 
of current assets to current liabilities; ratio of 
tangible net worth to annual self-insurance re- 
tention; ratio of net worth to annual compen- 
sation premium; ratio of working capital to total 
assets; ratio of quick assets to current liabilities; 
ratio of debt to tangible net worth; ratio of total 
debt to total assets; ratio of cash flow to total 
debt; ratio of new sales to total assets; ratio of 
new income to total assets; ratio of net income 
to net sales; (if a mercantile or manufacturing 
business) ratio of net credit sales to a\erage ac- 
counts receivable; ratio of income, before interest 
and income taxes, to annual interest expense; and 
such other meaningful fmancial analyses in each 
case that the Commissioner may apply. 

(dj AU fmancial statement formulations shall 
be provided in such detail as to facilitate appli- 
cation of indicated ratio analyses. 

(e) Each applicant shall execute and fde with 
the Commissioner an agreement, which shall be 
part of his application, wherein the applicant 
agrees to fuUy comply with the act and to deposit 
with the Commissioner cash, acceptable securi- 
ties, or a surety bond issued by a corporate surety 
that will guarantee the applicant's compliance 
with this Section and with the act. 

(f) .After considering the application and all 
supportive data, the Commissioner shall either 
grant authorization or deny authorization and 
advise the applicant of deficiencies that constitute 
the basis for denial. If the deticiencies are re- 
solved to the Commissioner's satisfaction within 
30 days of the date of Commissioner's notice, 
authorization shall be granted. 

(g) The applicant may. in the discretion of the 
Commissioner, be granted additional time to 
remedy deticiencies in its application in order to 
meet the requirements of this Section. A request 
for an extension of time shall be made in writing 
by the applicant within 30 days after notice of 
denial by the Commissioner. If the Commis- 
sioner is not satisfied that all requirements of this 
Section have been met. the application shall be 
considered withdrawn. 

(h) Upon meeting the requirements of this 
Section, an applicant shall recei\e a written cer- 
tilicate of authority to self-insure. 

Statiuoty Authority G.S. 9^-93. 

.()60S DF.POSITS: BONDS: F.XCFSS 
INSLRANCt - KMI'LO^ tRS 

(a) Each employer shall, on or before the ef- 
fecti\'e date of operation of its plan of self- 
insurance, deposit with the Commissioner, cash 
or acceptable securities, or post a surety bond is- 
sued by a corporate surety, in a minimum 



amount of two hundred thousand dollars 
(S200,000). A surety bond or security deposit in 
e.xcess of two hundred thousand dollars 
($200,000) may be required by the Commissioner 
dejTending on the fmancial status of the employer 
or if the employer has experienced a deterioration 
in financial condition. 

(b) Each employer, except a public employer, 
with a net worth of at least twentv-five million 
doUars ($25,000,000) and total fixed assets m 
North Carolina of at least three hundred rruUion 
dollars ($300,000,000) shall maintain specific ex- 
cess insurance unless the Commissioner, in his 
discretion, waives this requirement. Such specific 
e.xcess insurance sh;dl be in a limit of at least two 
million dollars ($2,000,000). Higher limits may 
be required for an employer with a higher nsk of 
multiple injuries from a single occurrence. The 
retention underlying specific excess pohcies shall 
be the lowest retention generally available for 
emplo\'ers of similar size and exposure, but may. 
in the Commissioner's discretion, be established 
at higher le\els consistent with the employer's 
claims experience and financial condition. 

(c) Each employer, except a public employer, 
with either a net worth of less than twenty-five 
million ($25,000,000) or total fixed assets in 
North Carolina of less than three hundred 
million dollars ($300,000,000), shall mamtam ag- 
gregate excess insurance unless the Commis- 
sioner in his discretion wai\-es this requirement. 
The amount of such insurance and the self- 
insurance retention shall be subject to determi- 
nation by and appro\'al of the Commissioner. 

Statuton Authority G.S. 97-93. 

.0609 REPORTS - EMPLOYERS 

(a) A report may be submitted on other than 
a prescribed form only with the prior appro\al 
of the Commissioner. The deadlines for filing 
of prescribed reports are as provided in this Sec- 
tion. Reports other than those with prescribed 
due dates shall be tiled at such times that the 
Commissioner establishes and. except reports re- 
lated to financial impairment, shall not be re- 
quired to be filed w ithout 30 days prior written 
notice from the Commissioner. 

(b) Copies of all tinal payroll reports showing 
pavroUs bv appropnate classification shall be 
filed. 

(c) Each empkn er shall prompth report to the 
Commissioner changes in the names and ad- 
dresses of the businesses it self-insures or intends 
to self-insure, as well as changes in its business 
structure, including its di\isions. subsidiaries, and 
internal organization. .-Vny such change shall be 
reported in writing to the Commissioner within 



346 



5:5 SORTH CAROLIS.A REGISTER June 1, 1990 



PROPOSED RULES 



ten days after the effective date of the change. 
Appropriate endorsements to surety bonds or 
excess insurance policies, or both, that specify 
that any additional named insureds shall be filed 
within 90 days of the effective date of the change. 
Bonds of coverages or cover notes providing for 
at least 90 days coverage shall be filed within 30 
days after the effective date of the change. 

(d) Each employer shall submit a statement of 
fmancial condition meeting the criteria estab- 
lished in this Section within 120 days following 
the close of its fiscal year. 

(e) Within 60 days of the evaluation date of the 
losses for a coverage period, each employer shall 
submit an annual report of outstanding workers' 
compensation liabilities. Such report shall show 
liabilities, excess carrier and other qualifying 
credits, if any, and net retained liabilities. 

(f) All employers shall maintain such payroll 
records that are necessary to complete and verify 
the accuracy of the annual self-insurers payroU 
report. 

(g) .An employer that does not have the 
record-keeping capability required by this Section 
on October 1, 1990, shall comply with this Sec- 
tion within one year thereafter. 

(h) Summary loss reports formatted by classi- 
fications as prescribed in the unit statistical plan 
of the principal workers' compensation rating 
organization in North C'arolina shall be filed as 
required by the Commissioner. 

Statutory Authority G.S. 58-2-145; 97-93. 

.0610 APPLIC.VnON - GROLl'S 

(a) Application may be made to provide 
workers' compensation coverage for a group in 
accordance with the terms of an indemnity 
agreement. Application shall be made to the 
Commissioner for such privilege on forms pre- 
scribed by the Commissioner and shall be filed 
with the Commissioner at least 60 days prior to 
the desired effective date of self-insured status. 
The application shall contain answers to all 
questions propounded and shall be a sworn 
statement. Until all requested data has been 
filed, an apphcation is incomplete. 

(b) The application shall include without limi- 
tation to the foUowing: 

(1) a copy of the bylaws of the proposed 
group; 

(2) an individual application of each member 
of the group applying for coverage in the 
group on the inception date of the group; 

(3) a current certified financial statement of 
each member, including at a minimum, a 
balance sheet, a profit and loss statement, 
a statement of change in loss fund posi- 



tion, and a statement showing the com- 
bined net worth of all members applying 
for coverage on the inception date of the 
group. Such combined net worth shall 
be an amount that establishes the fmancial 
strength and liquidity of the businesses. 
Pubhc groups and nonprofit groups may 
furnish a copy of a current year budget or 
audit report in lieu of a certified fmancial 
statement; 

(4) evidence of the financial ability of the 
group to meet its obligations under the 
act; 

(5) a composite listing of the estimated 
standard premium to be developed for 
each member indi\ idually and in total as 
a group. Payroll data for each of the three 
preceding years shall be furnished by risk 
classification; 

(6) documented agreement by each member 
to pay to the group not less than 25 per- 
cent of estimated annual manual premium 
not later than the initial day of coverage 
afforded by the group; 

(7) a confirmation of any required excess in- 
surance underwritten by an authorized 
insurer in limits that are acceptable to the 
Commissioner; 

(8) designation of the initial trustees or ad- 
ministrator, or both; 

(9) proof of a fidelity bond, issued by an au- 
thorized insurer, covering the group ad- 
ministrator in a form and an amount 
acceptable to the Commissioner; 

(10) an indemnity agreement jointly and se- 
\erally binding the group and each mem- 
ber thereof to comply with the provisions 
of the act and pay obligations imposed by 
the act, which shall conform to an 
indemnity agreement prescribed by the 
Commissioner; 

(11) a breakdown of all projected administra- 
ti\e expenses for the fund year in dollar 
amount and as a percentage of the esti- 
mated annual manual premium; 

(12) proof pro\idcd b^' the trustees, satisfac- 
tory' to the Commissioner, that the annual 
gross premiums of the group will be not 
less than one hundred thousand dollars 
($100,000); 

(13) proof, satisfactory to tlic Crommissioner, 
that either the applicant has within its 
own organization ample facilities and 
competent personnel to service its own 
program with respect to underwriting 
matters, claims adjusting, and industrial 
safety engineeiing; or that the applicant 
will contract with a service company to 



5:5 NORTH CAROLINA REGISTER June l. 1990 



347 



PROPOSED RULES 



provide these services and the reporting 
of loss data to the Commissioner. If any 
plan servicing is to be done by the appli- 
cant, biographies of those persons who 
will be responsible for or performing such 
functions shall be submitted to the Com- 
missioner with the application; 
(14) a letter of assent stipulating the appli- 
cant's acceptance of membership status in 
the North Carolina Self- Insurance Guar- 
anty Association under Article 4 of the 
act. 

(c) After considering the application and all 
supportive data, the Commissioner shall either 
grant authorization or deny authorization and 
inform the applicant of deficiencies that consti- 
tute the basis for denial. If the deficiencies are 
resolved to the Commissioner's satisfaction 
within 30 days of the Commissioner's notice, 
authoriy.ation shall be granted to the appUcant. 

(d) The applicant may, in the discretion of the 
Commissioner, be granted additional time to 
remedy the deficiencies in its application in order 
to meet the requirements of this Section. A re- 
quest for an extension of time shall be made in 
writing by the appUcant within 30 days after no- 
tice of denial by the Commissioner. If the 
Commissioner is not satisfied that all require- 
ments of this Section have been met, the appli- 
cation shall be considered withdrawn. 

(e) Upon meeting the requirements of this 
Section, the applicant shall recei\e a written cer- 
tificate of authority to self-insure. 

Staiutoiy Authority G.S. 5S-2-I45; 9Z-93. 

.061 1 DEPOSITS: BONDS: KXCESS 
INSl RANCK - (;R0LPS 

(a) Each group shall deposit with the Com- 
missioner, not later than the effective date of 
coverage, cash or acceptable securities, or post a 
surety bond issued by a corporate surety, in a 
minimum amount of four hundred thousand 
dollars ($400,000). A surety bond or security 
deposit in excess of four hundred thousand dol- 
lars ($400,000) may be required by the Commis- 
sioner if he determines that the group has 
experienced a deterioration in financial condition. 

(b) The amount of the security' deposit or bond 
required shall be detemuned at least annually by 
the Commissioner based on data submitted by 
the group to the Commissioner. 

(c) Each group shall maintain specific excess 
insurance with a limit of at least two million 
dollars ($2,000,000). Groups comprising busi- 
nesses with high risks of multiple injuries from 
single occurrences may be required b\' the Com- 
missioner to maintain higher limits. \\'ith respect 



to specific excess insurance, a group's retention 
shall be the lowest retention generally available 
for groups with similar exposures and annual 
premium; but the Commissioner may, in his 
discretion, require higher levels consistent with 
the group's claims experience and fmancial con- 
dition. 

(d) Each group shall maintain aggregate excess 
insurance; unless a security deposit acceptable to 
the Commissioner is made or unless unencum- 
bered surplus or additional loss funds in an 
amount and asset form acceptable to the Com- 
missioner is held by the group. The aggregate 
excess insurance limit and agcregate retention for 
a group must be acceptable to the Commis- 
sioner. 

Statutory Authority G.S. 97-93. 

.0612 REPORTS - GKOL PS 

(a) Reports as to fmancial condition, payroll 
records, co\erage. accident experience, compen- 
sation payments, and other reports shall be filed 
with the Commissioner as follows: 

(1) Each group shall file with the Commis- 
sioner within 120 days after the close of 
the fund year a statement of financial 
condition, which statement shall include 
a report of the outstanding workers' com- 
pensation liabilities of the group, mclud- 
ing details of the amount and source of 
all monies recoverable from any third 
party. Financial statements shall, at a 
minimum, comprise a balance sheet, a 
profit and loss statement, a statement of 
change in group position, and a listing of 
any accounts that are delinquent by more 
than 90 days. 

(2) The Commissioner may require quarterly 
or monthly financial disclosures of a sim- 
ilar nature from individual members of a 
group or of the group if he has reason to 
beUeve that there has been a deterioration 
in the financial condition of the group or 
of any of the group's members that ad- 
\crsch- affects the group's ability to pay 
expected losses. 

(3) Summan.' loss reports, formatted by clas- 
sifications as prescribed in the unit statis- 
tical plan of the principal workers' 
compensation rating organization in 
North Carohna, shall be filed as required 
by the Commissioner. 

(4) Properly classified and audited pa\ rolls on 
each group member shall be submitted to 
the Commissioner within 60 days after the 
evaluation date of the summars' loss in- 



34S 



5:5 NORTH C.AROLIN.A REGISTER .lime I. 1990 



PROPOSED RULES 



formation required in Paragraph (a)(3) of 
this Rule. 
(5) Quarterly status reports that accurately 
reflect the financial condition of each open 
fund year, if required, shall be filed with 
the Commissioner within 45 days after the 
close of each fund year quarter and signed 
by the chairman of the trustees or by the 
fund administrator. A fund year shall be 
considered open as long as one claim re- 
mains outstanding; but in any event shall 
remain open not less than three years 
from the beginning of the fund year. A 
listing of all dehnquent accounts shall be 
furnished to the Commissioner as part of 
this report. 

(b) The failure or refusal of an\' group to file 
the reports specified in Paragraph (a) of this Rule 
within the time limits prescribed h\ this Section 
or by any pro\'ision of the act may be grounds 
for revocation, suspension, or nonrenewal of the 
authority to sell-insure. 

(c) Every group member sh;iU notify the group 
to which it belongs of an\' changes in the names, 
addresses, structure, or composition of any busi- 
nesses or subsidiaries that participate in the 
group. Ever\' group member shall notify the 
group of any additions or deletions of the busi- 
nesses or subsidiaries participating in the group, 
including changes in majonty ownership interest 
in any business or subsidiary that is covered or 
that will be co\'crcd by the group. All such 
changes shall be reported to the group within ten 
days after the cffecti\e date of the change. I'pon 
receipt of such notice, each group shall notify the 
Commissioner, in writing, of such reported 
changes. 

(d) ,\ny group that does not have the record- 
keeping capability required b\' this Section on 
October 1, l'^90, must be in compliance with tliis 
Section within ')() da\s thereafter. 

Statutory Authority G.S. 5S-2-I45; 97-93. 

.0613 (;K0LI' KKSPONSIBIIJTIES 

(a) ihe trustees of each gi'oup shall cause to 
be adopted a set of bylaws or shall enter into a 
trust agreement that governs the operation of the 
group. fhese bylaws or taist agreement shall 
contain, but not be limited to, the following 
subjects: 

(1) qualifications for group membership, in- 
cluding underwnting considerations; 

(2) the method for selecting the trustees, in- 
cluding the term of office; 

(-1) the method for amending the bylaws and 
plan of operation; 



(4) the method for cstabUshing and maintain- 
ing the group, which has previously been 
approved by the Commissioner in writing. 

(b) Each group shall file a copy of the current 
bylaws, trust agreement, and required written 
policies with the Commissioner. Any changes in 
bylaws, trust agreement, or written policies shall 
be filed with the Commissioner no later than 30 
days prior to the date of becoming effective. The 
Commissioner may order the group to rescind 
or revoke an> bylaw or policy if it is in violation 
of this Section or any other applicable law or 
administrative rule. 

(c) The majority of such trustees must be 
members of the group, but a trustee shall not be 
an owner, officer, or employee of a senice com- 
pany. Trustees may delegate ministerial author- 
ity for membership approval to such person as 
they select, pro\ided that person is not an owner, 
officer, or employee of any service company. 

Statutorj- Authority G.S. 97-93. 

.0614 .ADMISSION WD TERMINATION OK 
GROLP MEMRERS 

(a) After the inception date of a group, pro- 
spective new members of a group shall submit 
an application for membership to the trustees or 
the group administrator, on a fonn approved or 
prescribed by the Commissioner. The trustees 
or administrator ma\' appro\e the application for 
membership pursuant to the bylaws of the group. 
The application for membership shall then be 
filed with the Commissioner. Membership shall 
take effect after appro\al by the Commissioner. 
Members shall receive a certificate of coverage 
from the trustees on a fonn acceptable to the 
Commissioner. 

(b) Individual members may elect to tenninate 
their participation in a group and may be subject 
to cancellation by the group pursuant to the by- 
laws of the group. However, such terminaticm 
or canceUation shall not take place for at least ten 
days after the Commissioner has received notice 
of the termination or cancellation. Not less than 
30 days' notice shall be gis'en to a member prior 
to any cancellation by the group. 

Statutory Authority G.S. 97-93. 

n ILK I5A - DEPARIMKN I OF 

ENMRONMINI, FIK \1 111, AND 

NAil RAL RESOIRC 1 S 



lyoticc /.t hereby given in accordance with G.S. 
/SOB-/ 2 i/hit ihc .Xorth Carohna Wildlife /\e- 



5:5 IS'ORTH CAROLL\.4 REGISTER .liine 1.1990 



349 



PROPOSED RULES 



sources Commission intends to amend nile(s) 
cited as I5A NCAC IOC .0305. 

1 he proposed effecthr date of this action is No- 
vember /, J 990. 

1 he public hearing will be conducted at 7:00 
p.m. on Julv 5, 1990 at Halifax Comtnunity Col- 
lege, Weldon, .\C 2^339. 

V_ omincnt Procedures: Interested persons may 
present their views either orally or in writing at the 
hearing. In addition, the record of hearing will 
be open for receipt of written comments from June 
21. 1990 to .luly 20. 1990. Such written comments 
must be delivered or mailed to the ,\'.C. Wildlife 
Resources Commission. 512 .V. Salisbuty .Street, 
Raleigh. .\C 2761 1. 

C flAI'lKR 10 - WII Dl II R RKSOLRCKS AM) 
\V A IKR SAFtTV 

SI UCIIAnRR IOC - INLAND I ISIIING 
RKGLLATIONS 

SECTION .0300 - GAME EISII 

.0305 OPEN SEASONS: CREEL AND SIZE 
I IMIIS 

(a) Generally. Subject to the exceptions listed 
in Paragraph (b) of this Rule, the open seasons 
and creel and size limits are as indicated in the 
followins table: 



GAMI: IISIII-S 

Mountain Trout 
(,\11 Species) 



DAII VCRFEL 
L1MHS 



(excptn. 3) 



Muskellunge 
and Tiger Musky 

Chain Pickerel 
(Jack) 



Smallmouth 
and Spotted 

\\'hite Bass 



Sea Trout (Spot- 
ted or Speckled) 

I lounder 

Red drum (channel 
bass, red fish, 
puppy drum) 

Striped Bass 
and their hybrids 
(Morone II_\brids) 

Kokanee Sabnon 

Panfishcs 



NONGAME FISHES 

MINIMTM 
SIZE EEMHS 

None 

(excptn. 3) 



None 
(excptn. ll 



30 in. 
None 



None 
(excptn. 9) 



(excptn. 8 
and 10) 



(excptn. 8 
and 10) 

25 
(excptn. 1) 

None 



None 
None 



8 aggregate 
(exc. 1 and 6) 



None 
(excptn. 5) 

None 

OPEN SEASON 
(EXCPTN. 2) 

All vear, except 
.March 1 to 12 
hr. before 
sunrise on 
first Saturday 
in .April 
(excptns. 2 and 3) 

A I I ^ EAR 



.\1 I M .\R 



.\I I ^'E.\R 



\\'alle\e 



(excptn. 9 
and 10 1 



15 in. 



.ME \ E.\R 



Sanger 

Black Bass: 
Larsemouth 



14 m. 

(excptns. 4, 
Sand llj 



,M I VT.AR 

(excptn. 13) 



350 



5:5 iXORTH C.4ROLI\.i REGISTER .lime 1,1 9W 



PROPOSED RULES 



12 in. 

(excptns. 4, 
Sand 11) 

None 



12 in. 



13 in. 

14 in. 



16 in. 

(exc. 1 and 12) 



None 



None 



None 



(b) Exceptions 



ALL YEAR 

ALL YEAR 
ALL YEAR 



ALL YEAR 
ALL YEAR 



ALL YEAR 

(excptn. 6} 

ALL YEAR 

ALL YEAR 

(excptn. 5) 

ALL YEAR 

(e.xcptn. 7) 



(6) In the inland fishing waters of the coastal 
rivers and their tributaries extending up- 
stream to the first impoundment, or to the 
headwaters, if unimpounded, the daily 
creel limit for striped bass and their hy- 
brids is three fish and no striped bass be- 
tween the lenirths of 22 inches and 27 
inches, both inclusive, mi\\ be retained 
from April J_ ihrcnigh Ma\' 3_L hi the 
Roanoke Ri\cr and it's tributaries vip- 
stream to the dam at Roanoke Rapids, 
no striped bass may be retained from Mav 
10 to March 31. 



Statutory Authoritv G.S. 
113-304; 113-305. 



113-134: 113-292: 



TITLE 16 



DEPARTMENT OE PL BLIC 
EDUCATION 



lyotice is hereby gh-en in accordance with G.S. 
J SOB- J 2 that the State Board of Education in- 
tends to amend rules cited as 16 iXCAC 6C .0403. 

J he proposed effecthe date of this action is Oc- 
tober I. 1990. 

1 lie public hearing will be conducted at 3:00 
p.m. on July 5. 1990 at Third Floor Board Room. 



Education Building. 1 16 West Edenton Street, 
Raleigh, NC 27603-1712. 

y^omment Procedures: Any interested person 
may present v/cvt'5 and comments either in writing 
prior to or at the hearing or orally at the hearing. 

CHAPTER 6 - ELEMENTARY AND 
SECONDARY EDLCATION 

SLBCIIAI'I ER 6C - I'ERSONNEL 

SECTION .0400 - LEAVE 

.0403 SLBSTITL'TES 

(a) LEAs shall employ all substitutes deemed 
necessary for the efficient operation of the unit. 
The superintendent determines the need to em- 
ploy a substitute for a non-teaching assistant 
principal, principal or supervisor. 

(b) The period of substitution is short-term if 
it includes 5 or less consecutive days in the same 
position. Periods in excess of five days are 
long-tcnn. 

(trf 44h* I T>,\ f«T*¥ H€t+ pay teacher aides as 
i. uh - jtitute teachers. 

ftif (c| LEAs employ substitute teachers in units 
of half or whole days. The LEA treats responsi- 
bilities w hich require less than half a day as a half 
day of employment. 

{&f (d| The LEA pays substitutes as follows: 

(1) A person who substitutes for a non- 
teaching assistant principal, principal or 
supervisor is paid from local funds. 

(2) L'nlcss recjuircd to be otherwise, a substi- 
tute for the regular teacher is paid from 
the same source of funds as the regular 
teacher is paid. 

fP} (c) Absences not co\-ered in Rule .0404 re- 
quire the appropriate amount of substitute 
teacher pay to be deducted from the regular 
teacher's salary. These absences include ex- 
tended sick leave as explained in Paragraph f^ 
(£l of this Rule, personal leave and in-state 
meetings of no longer than 3 days or out-of-state 
meetings of no longer than 3 days, and not to 
exceed a total of 10 days within the school year, 
for professional responsibilities and attendance 
at professional meetings. The superintendent 
must approve these absences. The time limita- 
tions of this Rule do not apply to a person who 
is the local or district president or president-elect 
or a state or national officer of an educational 
professional organization, or to a person selected 
as National Teacher of the \'ear from this state. 

fe4 (1} A teacher may be absent due to personal 
illness for up to 20 teaching days in excess of ac- 
cumulated sick leave. The superintendent may 



5:5 NORTH CAROLINA REGISTER June I, 1990 



351 



PROPOSED RULES 



require a doctor's certificate or other acceptable 
proof of the reason for the absence. 

f4*^ (g] Teachers earn personal leave at the rate 
of one-half day for e\er\- two and one-half 
months .20 days for full month of employment 
and may accumulate five personal leave days. 
Teachers may transfer these days between LEAs. 
A teacher who requests personal leave at least 
fi\e days in advance of the date desired is not re- 
quired to gi\'e a reason for the leave. No teacher 
may take personal leave on the fu'st da\- teachers 
are required to report for the school year, re- 
quired teacher workdays, the day before or the 
day after holidays or scheduled vacation days, 
except as approved by the principal. The LEA 
shall credit a teacher who has separated from 
ser\ice and is re-emploscd within 60 months 
from the date of separation with all personal 
leave, up to the five-day maximum, accumulated 
at the time of separation. The LEA may not 
advance personal leave be\ond that which a 
teacher earns. Teachers may take personal leave 
in units of one-half or w hole days. 

f+f (h) If the regular teacher vacates a teaching 
position during the school year, that teacher re- 
ceives the regular compensation for the actual 
days employed during the current month, ad- 
justed for ONcrdrawn leave or unpaid longevity 
pay. If the LEA employs an interim teacher to 
fill the vacancy until a regular teacher is available, 
the LEA pays the interim teacher as foUows: 

(1) For ser\'ice of no more than 10 teaching 
days, the person is paid as a substitute. 

(2) Tor service in excess of 10 teaching days, 
the person is paid on the basis of the per- 
son's certified salary rating. The person 
may elect to be paid as a substitute. 

Statutoiy Authority G.S. I I5C-I2(S). 

THLE 20 - DEP AR IMENT OE ST.ATE 
IREASLRER 

lyoticc is hereby given in accordance with G.S. 
I SOB- 1 2 that the State Treasurer intends to 
amend rule cited as 20 SCiC IG .0104. The 
Local Governtfient Commission intends to adopt 
tides cited as 20 .\C,IC 3 .1001 - .1010. The 
Solid ]\'aste .Management Capital Projects Fi- 
nancing .Igencv intends to adopt rules cited as 20 
.\CAC 10 .o'lOl - .0/02. .0201 - .0202, .0301. 
,0401 - .0403. .0501 - .0502. 



Th 



he proposed effective date of these actions are 
October /, 1990.' 



1 he public hearing will be conducted at 10:00 
a.m. on July 17, 1990 at Conference Room, Room 
100, /{Ihemarle Building. 325 Sorth Salisbury 
Street, Raleigh. Sorth Carolina 27603-/388. 

(comment Procedures: .4 written copv of' the 
comments will be required of all per.wns wishing 
to speak at the Public //earing. Tlie hearing pe- 
riod will remain open for written comments until 
./u/y /9, /990. Written comments should be sent 
to the A PA Coordinator at t/ie address above. 

CIIAPTKR 1 - DFPAKrMKMAL RL I.F.S 

SI IKIIAITF.K \G - INN KSIMKM I'K()(;RAM 

SUCTION .0100 - CKNKR \l. l'RO\ ISIONS 

.0104 .NCCOLNTING FOR F.XCII.VNGES 

(b) .Aji exchange shall be considered to be the 
disposition of one fixed income investment secu- 
nt\' and the reinvestment of the proceeds of that 
sale in an equal par value of another fixed income 
investment security with both transactions hav- 
ing the same trade date. Equal par value means 
that the difference in par value between the in- 
coming and outgoing securities at the time the 
transaction is aizreed to is less than ihirlOL - n 
tliou 'i und dolliir - j ('^L'i.OOO). or equal to one 
percent of the jw value of the outuoing 
security (ies). 

Statutory Authority G.S. 147-69.3. 

CII.VrrtR 3 - LOCAL (;0\ KRNMKNT 
COMMISSION 

SECTION .1000 - KMDFN riAR\ IIFARINC ON 
RFFl NOINC; BONDS 

.1001 DEFINITIONS 

The words and phrases in this Section of the 
administrative rules will have the same meaiiimis 
as set forth in G.S. 159-1 and G.S. 159B-3. 

Statutory Authority G.S. /59-3{f): /59B-25ib). 

.1002 WHO MA^ RFQl EST A IIE.VRING 

.Any municipality or joint agency that wishes to 
issue refunding bonds pursuant to G.S. 
159B-25(b) and meets the time limits set forth in 
that subsection of the statute mav reque>t an 
evidentiary hearing before the Local Government 
Commission. 

Statutoiy Authority G.S. 159-3 ff I: /59B-25ib). 

.1003 PETITION FOR IIE.VRING 



352 



5:5 NORTH CAROLINA RECLSTER .lime 1, 1990 



PROPOSED RULES 



The municipality or joint agency shall file a pe- 
tition with the Secretary of the Local Govern- 
ment Commission setting forth the facts upon 
which its desire to issue refunding bonds is based 
and any legal arguments supporting its view that 
reissuance is proper. Ihe municipality or joint 
agency should mail one original and ten copies 
of the petition to the office of the Secretary of the 
Local Government Commission at 325 North 
Salisbury Street, Raleigh, North Carolina 27603. 
No filing fee is required. 

Statutory Authority G.S. l59-3(f); l59B-25(h). 

.1004 FORM FOR FILING 

The petition siiall be in such form as is generally 
used m a legal proceeding. 

Statutory Authority G.S. l59-3(f): l59B-25{b). 

.1005 MRARING OFFICER 

The State Treasurer shall designate the hearing 
officer responsible for the conduct of the 
evidentian, hearing and for making a recommen- 
dation for decision to the Local Go\emment 
Commission. 

Statutory Authority G.S. l59-3(f); 159B-25(h). 

.1006 TIME FOR THE HEARING 

The evidentiary heanng sh:ill be scheduled by 
the hearing officer within 30 days of the receipt 
by the Secrctar\' of the Local Go\emment 
Commission of a petition requesting the hearing. 

Statutory Authority G.S. J59-3ifj; J59B-:5ib). 

.1007 NOTICE OF HE. \R1NG 

The hearing officer shall gi\e notice by certified 
mail of the time, date and place of the hearing to 
the petitioner and its member municipalities at 
least 15 days prior thereto. 

Slatutoiy Authority G.S. I59-3(f); J59B-25(bJ. 

.1008 CONDUCT OF THE HE.^RING 

(a) If a party or interested person fails to appear 
after notice was gi\'en, the hearing officer may 
proceed with the heanng and make its decision 
m the absence of the party or interested person. 

(b) The petitioner shall be given an opportu- 
nity to present arguments on matters of law and 
policy and an opportunity to present e\idencc 
on matters of fact as they relate to the issues set 
forth in Rule .1009 of this Section. 

(c) The staff for the Local Govcnimcnt Com- 
mission shall be given an opportunity, if they so 
request in writing at least ten days before the 



scheduled hearing date, to present arguments on 
matters of law and policy and an opportunity to 
present evidence on matters of fact as they relate 
to the issues set forth in Rule .1009 of this Sec- 
tion. A copy of any written request from the 
staff must be ser\ed upon the petitioner and any 
parties known to have a direct interest in the 
hearing at the time the request is made. 

(d) The rules of evidence for the hearing shaU 
be as set forth in G.S. 150B-29. 

(e) Official notice may be taken of all facts of 
which judicial notice maybe taken and of other 
facts within the specialized knowledge of the 
hearing officer. 

(f) The hearing officer is authorized to issue 
subpoenas upon his own motion or upon \v ritten 
request. 

(g) j\n infonnal record containing in substance 
the evidence, contentions and arguments pre- 
sented at the hearing shall be made. A verbatim 
transcript of the hearing may be ret]uested by the 
petitioner, a participating party or the staff to the 
Commission. The costs of the production of the 
origmal verbatim transcript shall be borne by the 
party requesting it. 

(h) The hearing officer is authorized to control 
the hearing, its length, the order of the presenta- 
tion of evidence and arguments and to require the 
submission of proposed findings and conclusions. 

Statutory Authority G.S. l59-3(f); /39B-25(b). 

.1009 RECOMMENDED DECISION 

The hearing officer shall issue a recommended 
decision in writing containing findings and con- 
clusions as required under Ci.S. 159n-25(b). The 
recommended decision shall be issued within ten 
days of the completion of the hearing or the 
preparation of a verbatim transcript, whichever 
occurs last; and shall be presented promptly to 
the Local Government Commission. 

Statutoty Authority G.S. /59-3(f): l59B-25(b). 

.1010 FINAL DECISION 

(a) The Secretary shall call a meeting of the 
Local Govermnent Commission or its Lxecutive 
Committee within ten days of the receipt of the 
recommended decision and the review from the 
hearing officer. 

(b) A copy of the final decision shall be served 
upon the petitioner, and all other parties partic- 
ipating in the hearing by certified mail or per- 
sonal sen.'ice. 

Statutory Authority G.S. l59-3(f): J59B-25(b). 



5:5 NORTH CAROLINA REGISTER June 1,1990 



353 



PROPOSED RULES 



CIIAPI KK 10 - SOI. in WASTE MANAGEMENT 
CAIMI Al. PROJKdS FINANCING AGENCY 

SECTION .0100 - GENERAL PROMSIONS 

.0101 ORGANIZATION AND IT NCIIONS 

(a) The Solid Waste \Tanagcmcnt Capital 
Projects Financing Agency operates within the 
Department of State Treasurer and is the state 
agency charged with the implementation of 
Chapter 15')I of the General Statutes of North 
Carolina for the Solid Waste Management Foan 
Program. 

(b) The following is general infonnation about 
the /\genc\": 

(1) The Administrati\e Officer is the .\dmm- 
istrator of the /Vgency; 

(2) The mailing address is .^25 North Salisbury 
Street. Raleigh, North Carolina 
27603-1388: and"" 

(3) The office is located in the Albemarle 
Building, 325 North Salisbury Street, 
Raleigh, North Carolina. 

(c) The staff of the Solid Waste Management 
Capital Projects Financing Agency is pro\ided 
by the State and Local Gosemment Finance Di- 
vision of the Department of the State Treasurer. 

Stannoiy Auihority G.S. I50l-4ih): /50I-5(Sj. 

.0102 OKI INinONS 

The words and phrases defined in this Rule will 
ha\e the meanings indicated when used in this 
Chapter, unless the conte.\t clearly requires an- 
other meaning: 

(1) ".Agency" is the Solid Waste .Management 
Capital Projects Financing .Agency and the 
Board of [directors thereof. 

(2) "Administrator" is the .Administrator of the 
.Agency and is the Secretap,- Treasurer of the 
Agency. 

(3) "Di\'ision" means the Division of Solid 
Waste Management of the Department of 
Environment, Health, and Natural Re- 
sources. 

(4) ".Applicant" means a unit of go\eniment 
as defined in Ci.S. I.^'^I. 

Statutotj Authority G.S. 1501-3: I5QI-5(S). 
SECnON .0200 - K( I E-\IAKING 

.0201 Rl IE-MAKING I'ROC EDI RES 

(a) 21) NCAC IF' .0100 shall govern the is.su- 
ance of rules by the Agency. 

(b) .AH correspondence shall be addressed to 
the .Administrator at the mailing address of the 
AuencN . 



Statutory A itthority 
I59l-I0(b)(5). 



G.S. 1591-5(14); 



.0202 DECLARATORY RULES 

(a) 20 NCAC IF .0200 shaU govern the issu- 
ance of declaratory rules by the Agency. 

(b) All correspondence shaU be addressed to 
the Administrator at the mailing address of the 
Agency. 

Statutory Authority G.S. 1591-5(14). 

SECTION .0300 - CONTESTED CASES 

.0.^01 CONTESTED CASE PROCEDURES 

(a) 20 NCAC IF .0300 shall govern the 
hearings and decisions in contested cases. 

(b) /Ml correspondence shall be directed to the 
Administrator at the mailing address of the 
.Agency. 

Statutory- Authority G.S. l59I-5{ 14). 

SECTION .0400 - APPRO\ .\L OF 
APPLIC.MIONS 

.0401 PRELIMINARY CONFERENCE 

Fach apphcani shall request an infonnal pre- 
liminary conference with the .Administrator prior 
to submitting an appUcation to the Division in 
order to discuss the financial feasibility of the 
project. The Administrator may invite the stall 
of the Local GoNcmment Commission to partic- 
ipate. 

Statutory Authority G.S. 1591-5(14). 

.0402 APPLICATION FOR LO.\N 

(a) No final deternunation of financial eligibil- 
ity shall be made by the Agency until all of the 
following have been received by the Administra- 
tor: 

( 1 ) A copy of the application for the project 
submitted under G.S. 159-9; 

(2) The determination of the Division that the 
applicant is eligible under G.S. 15')I-10: 

(3) I'he project priority established by the 
Disision under CJ.S. 1591-11; and 

(4) .Any additional financial data requested by 
the Administrator. 

(b) L'pon receipt of the application by the 
.Agency the .Administrator may require the 
petitioner to attend an infonnal conference with 
the statf of the .Agency. I he .Administrator may 
require the filing of such additional information 
as he may consider \aluable to the consideration 
of the issues. The .Administrator ma\' in\ite the 
staff of the Focal C}o\ernment Commission to 



554 



5:5 i\ORTH CAROLLXA REGISTER June 1,1990 



PROPOSED RULES 



the informal conference to discuss financing of 
the project. 

Statutory Authority G.S. 1591-9; 1591-10; 
1 591- 12. 

.0403 AMENDMENT OF PRIOR APPROVALS 

(a) The applicant may make an application to 
amend a prior fmancial approval by the Agency, 
provided said application must be received prior 
to the Agency's incurring an obligation for the 
purpose of funding the applicant's project. 

(b) An application to amend prior approvals 
shall be submitted in the same manner as re- 
quired for initial approval including such other 
additional items as the Agency may request. 

(c) When the Agency proposes an amendment, 
it shall notify the applicant promptly. 



Statutoiy Authority G.S. 

(d). 



1591-11 (d); 1591-12 



SECTION .0500 - FEES 

.0501 COIJ.ECTION OF FEES 

(a) Application fees and other dctcmiinable 
costs shall be payable prior to final approval or 
participation by the Agency. 

(b) Annual fees, shall be payable as determined 
by the /Vgency. 

Stalutoty Authority G.S. 1591-5(7). 

.0502 FEES AND EXPENSES 

(a) A non-refundable fee is to be submitted 
with the application for a loan from Agency of 



(b) A non-refundable fee is to be submitted 
with the application for an amendment of a prior 
approval of $ . 

(c) An annual fee of $ per year. 

(d) All direct costs of the Agency, shall be re- 
imbursed to the Agency by the applicant. 

(e) The Agency shall not incur extraordinary 
expenses without prior agreement of the unit to 
reimburse the Agency for all related costs. 

Slaiutoiy Authority G.S. 1591-5(7). 

TITI i: 21 - OCCLPATIONAL LICEXSPsG 
BOARDS 



ly oticc is hereby given in accordance with G.S. 
150B-I2 that the N.C. Stale Board of Cosmetic 
Art E.xaminers intends to amend rules cited as 21 
NCAC 141 .0304; 14.] .0206 and adopt ndc cited 
as 2! NCAC I4J .0107. 



1 he proposed effective dale of this action is Oc- 
tober 1. 1990. 

1 he public hearing will be conducted at 10:00 
a.m. on July 9. 1990 at .V.C. State Board of Cos- 
metic Art Examiners' Office, 4101 Capital Blvd., 
Suite II. Raleigh. N.C. 27604. 

\^ omment Procedures: Written comments 
and/or requests for information or copies of the 
above rules may be sent to Vicky R. Goudie, 
Executive Secretary, N.C. State Board of Cos- 
metic Art Examiners, 4101 Capital Blvd., Suite 
11, Raleigh, N.C. 27604. Written and oral com- 
ments (for no more than ten minutes) on these 
ndes may be presented at the hearing. Notice 
should be sent to .Mrs. Goudie at least three days 
prior to the hearing, if you desire to speak. 

CHAPTER 14 - BOARD OF COSMETIC ART 
EXAMINERS 

SUBCHAPTER 141 - OPER.VTIONS OF 
SCHOOLS OF COSMEIIC .\RT 

SECTION .0.100 - CLASSROOMS 

.0.104 ( LASSROOM WORK 

(a) /Ml of the work outlined in the Beginners' 
Department and the Advanced Department shall 
be given to the students through practical dem- 
onstrations and recitations. 

(b) A4- k ' ai i t t+ve r e cilatu)n '. pef ' t vook t+f t+tw liour 
e iich i . huU be givon to r41 j. ludijnt !. . I'i\e hours 
of recitations shall be L:i\en to full-time students 



per wee 



Two and one-hall hours of recitation 



■'hall be gi\'en to part-time students per week. 

(c) Recitations shall include lectures, questions 
and answers on textbooks, and written examina- 
tions. 

(d) Ml papers written shall be carefuUy graded 
and returned to the students in order that the 
students may see their errors. 

Statutory Authority G.S. 88-23. 

SLBCHAPIER 14J - CLRRICLLLM 

SECriON .0100 - HE(;iNNERS' DEPARIMEN T 

.0107 .\PPRO\ED FIELD IRII'S 

Cosmetology Educational field Trips include 
the following activities: 

(1) Beauty Shops, 

(2) Cosmetology Con\'entions, 

(3) Competition Trainine, 

(4) Other Schools, 

(5) State Board Office and Archi\cs Museum, 



5:5 NORTH CAROLINA REGISTER June I, 1990 



355 



PROPOSED RULES 



(6) Supply Houses, 

(7) College or Career Day at School, 

(8) I'ashion Shows, 

(9) Rest Homes/Nursing Homes, 

(10) Hospitals, 

(11) 1-uneral Homes (Desairology). 

An instructor must be present during these edu- 
cational field trips, for credit to be given to stu- 
dent, with a ratio of one instructor per 20 
students present. 

Slatutory Authority G.S. SS-23. 

SKCriON .0200 - Al)\\\( KO DKI'AKTMRNT 

.0206 KQl II'MFM IN ADN ANTK.D 
DKI'AKIMKM 

The ad\anced department must be equipped 
with the following minimum equipment fof uvc ' iy 
^ 'i tudont '. in the department: 

(1) four manicure tables and stools, 

(2) eighteen dryers and chairs, 

(3) eight shampoo bowls and chairs, 

(4) three heating caps or one conditioning ma- 
chine, 

(5) thirty dressing tables and styling chairs, 

(6) three facial chairs, 

(7) three marcel heaters. 

(8) three marcel irons, and 

(9) sufficient cold wa\'c rods for each student 
enrolled in the department. 

Slatutory Authority G.S. <SS-23. 



No 



oticc is hereby given in accordance with G.S. 
I SOB- 1 2 that the State Board of Examiners of 
Electrical Contractors intends to adopt rules cited 
as 21 NCAC ISB .1101 - .1108. 



I he proposed effecti\'e date of this action is Oc- 
tober 1. IQQO. 

1 he public hearing will be conducted at 10:30 
a.m. on Julv 12, 1990 at State Board of Examin- 
ers of Electrical Contractors. 1200 front Street, 
Suite 105, Raleigh. AC 27609. 



Co 



'Ommenl Procedures: Any person interested in 
these n/les may present oral comments relevant to 
the actions proposed at the public hearing or de- 
liver written comments to the Stale Board of Ex- 
aminers of Electrical Contractors, 1200 front 
Street, Suite 105, Raleigh, A'C 27609. not later 
than 9 a.m. on ./ulv 12. 1990. 



CHAPTFR 18 - BOARD OF KXAMINKRS OF 
KLECIRICAL CONTRACIORS 

SI IJCIIAPTFR ISB - BOARD'S RILKS FOR 

TIIF IMPI KMKNTATION OF THE 

FI.Ftl RICAL ( OMRACriNC LICENSING ACT 

SECTION .1 100 - CONTINUING EDUCATION 

.1101 CONIINI ING FDl CAIION 

REQl IREMENIS FOR LISPED 
Ql ALIFIED INDIMDl ALS 

(a) Iiffcctive .July 1, 1991, every listed qualified 
individual, including listed qualified indi\iduals 
pursuant to G.S. 87-50, shall complete six con- 
tact hours of approved continuing education for 
each license period (July 1 - .June 30j to renew 
the license on which he is currently listed, for the 
next license period, except as follows: 

(1) Individuals becoming qualified by exam- 
ination during the 12 month period im- 
mediately preceding the license renewal 
date: 

(2) Qualified indi\iduals unable to fulfill the 
required number of hours as the result of 
illness or undue hardship as certified in 
writing by the attending physician or 
other responsible person and the wai\er 
of this requirement as specifically ap- 
proved by the Board: or 

(3) Approved instructors actually presenting 
courses in accordance with this Section. 

(b) The Board approves course sponsors and 
instructors, not particular courses, except as pro- 
vided in Paragraph (c) of this Rule. A course 
pro\ided by an appro\ed sponsor is presumed to 
meet the requirements as set forth in these Rules. 
Because of differences in the electrical contracting 
industry and indi\idual needs of listed qualified 
individuals, each (.jualified individual must exer- 
cise judgment in selecting courses for which 
continuing education is claimed and in choosing 
only those courses that will advance his know- 
ledge. 

(c) Course sponsors ma\' be, but are not lim- 
ited to, colleges or universities, community col- 
leges, trade associations, providers of self-study 
programs, employers, third party professional 
examination companies, private instructors and 
the like. 

(d) North Carolina listed qualified individuals 
residing vv ithin the state must iibtain the required 
continuing education hours by taking a course 
provided by an approved sponsor. 

(c) North Carolina listed qualified individuals 
residing outside of North (rarolina, including 
listed qualified individu;ils pursuant to G.S. 
87-50. may obtain credit for courses offered in 
their state, province or countn' of residence and 



.^56 



5:5 i\ORTH CAROLr\A REGISTER .fiuie 1,1990 



PROPOSED RULES 



provided by non-approved sponsors or instruc- 
tors provided the Board subsequently approves 
the courses taken. 

Statutory Authority G.S. 87-42; 87-44.1. 

.1102 MINIMUM REQUIREMENTS FOR 
COURSE SPONSOR .APPROV.AL 

(a) Each course sponsor shall submit an appli- 
cation for continuing education course sponsor 
approval to the Board on a form pro\ided by the 
Board by March 1 of the year prior to the license 
period (July 1 - June 30) in which the course will 
be offered. The application shall include but is 
not limited to: 

(1) The name of the sponsor; 

(2) Sponsor contact person, address and tele- 
phone number; 

(3) Course title and outline; 

(4) Course contact hours; 

(5) Schedule of courses, if established, includ- 
ing dates, time and locations; 

(6) Course fee; and 

(7) Name(s) of instructor(s). 

(b) To qualify as an approved continuing edu- 
cation course sponsor: 

(1) The course offered shall last si.x or more 
contact hours; and 

(2) The course offered shall cover articles of 
the current National [-"lectrical Code; 
North Carolina General Statutes Chapter 
87, Article 4; Title 21 North Carolma 
Administrative Code Chapter 18B; or 
other subject matter satisfying the re- 
ciuirements in G.S. 87-44.1 as approved 
by the Board. 

(c) The course otTered shaU be presented by 
one or more instructors approved b)' the Board. 

(d) The course sponsor or instructor shall pro- 
vide the Board with a certified class roster of all 
attending qualified individuals within 30 days af- 
ter the completion of each course. 

(e) The course sponsor or instructor shall pro- 
vide each attending qualified individual with a 
certificate of completion within 30 days after 
completion of each course. 

(f) The Board shall approve or deny applica- 
tions at its April meeting. 

(g) Appeals from denials shall be heard by the 
Board at a scheduled meeting in May. 

(h) Upon approval of the application, each 
approved sponsor shall agree to conduct courses 
in accordance with this Section and shall indicate 
its agreement by signing a continuing education 
sponsor agreement fomi pro\idcd by the Board. 

Stdtutoiy .Authoritv G.S. 87-42: 87-44.1. 



.1103 MINIMUM REQUIREMENTS FOR 
COURSE INSTRUCTOR APPROVAU 

(a) Each course instructor shall submit an ap- 
plication for continuing education course in- 
structor approval to the Board on a form 
provided by the Board by March 1 of the year 
prior to the license period (July 1 - June 30) in 
which the course will be offered. The application 
shall include but is not limited to: 

(1) The name of the instructor; 

(2) Instructor's address and telephone num- 
ber; 

(3) The name of the course sponsor; 

(4) Course title; 

(5) Course contact hours; and 

(6) Qualifications of instRictor. 

(b) To qualify as an approved continuing edu- 
cation course instructor: 

(1) The instructor shall have professional or 
trade experience e\'idenced by an appro- 
priate license, certification or degree; or 

(2) The instructor shall have other recognized 
expertise in the electrical industry. 

(c) The course instructor apphcation shall be 
submitted together with the application for con- 
tinuing education course sponsor approval as 
prescribed in Rule .1102 of this Section. 

(d) I'he Board shall approve or deny appUca- 
tions at its .April meeting. 

(e) Appeals from denials shall be heard by the 
Board at a scheduled meeting in .May. 

(f) Upon appro\al of the application, each ap- 
proved instructor shall agree to conduct courses 
in accordance with this Section and shall indicate 
his agreement by signing a continuing education 
instructor agreement form pro\ided by the 
Board. 

Statutory Authority G.S. 87-42; 87-44.1. 

.1104 CONT.ACT HOURS 

(a) Approved courses must be offered for six 
or more contact hours. Credit will be gi\en only 
in multiples of six contact hours (6, 12, 18). 

(b) Credit shall be granted to the qualified in- 
di\idual only upon completion of an entire 
course. 

(c) When a qualified individual lias completed 
more than the required number of hours of con- 
tinuing education in any one license period, the 
extra hours may be carried fon\ard in multiples 
of six and treated as hours earned in the following 
one or two additional license periods. 

(d) No credit will be granted for courses at- 
tended prior to July 1, 1991. 

(c) No credit will be granted for courses at- 
tended prior to being qualified by examination. 



5:5 NORTH CAROLINA REGISTER June I, 1990 



357 



PROPOSED RULES 



Statutory Authority G.S. 87-42; S7-44.I. 

.1105 COMF'LTATION OF CO.NTIMJING 
KDLCATION HOI RS 

(a) Group Courses: Non-college. C'ontinuing 
education credit for a group course that is not 
part of a college curriculum is given based on 
contact hours. A contact hour is 50 minutes of 
instruction. Credit is granted only for full con- 
tact hours. I'or example, a group course lasting 
31)0 minutes is six contact hours and thus satisfies 
one year of the continuing education recjuire- 
ment. 

(b) College Courses. Contmuing education 
credit for a college course in the college curric- 
ulum is given based on college credit hours. One 
semester hour of college credit is 15 contact 
hours; one c]uarter hour of college credit is ten 
contact hours; and one continuing education unit 
(CHU) is ten contact hours. 

(c) Self-Study Courses. Continuing education 
credit for a self-study course is gi\'en based on the 
average number of contact hours needed to 
complete the course. One-half of the average 
completion time is allowed for continuing edu- 
cation credit. A sponsor must determine the av- 
erage number of contact hours it takes to 
complete the self-stud>- course and submit this 
information with its application for ctmtinuing 
education course sponsor approval. 

(d) lixamination. Continuing education credit 
for an examination is given based on the type of 
examination, maximum number of questions, 
maximum number of hours permitted to take the 
examination, and minimum passing grade. A 
sponsor must determine and submit tliis infor- 
mation with its application for continuing edu- 
cation course sponsor approval. 

(e) Totaling Annual I lours. No credit shall 
be allowed for a course having a total of fewer 
than six contact hours. A course lasting between 
six and 1 1 hours will satisfy one year of the re- 
quired continuing education; a course lasting be- 
tween 12-17 hours will satisfy 2 >ears of the 
required continuing education; and a course last- 
ing 18 or more hours will satisfy three sears of 
the required continuing education. Credit hours 
for more than one year arc subject to the pro- 
visions of Rule .1 104(c) of this Section. 

Statutory Aui/iority Ct.S. S7-42; 87-44.1 . 



.1 106 LIST OF API'ROVFJ) COURSE 

SPONSORS AND INS I RLCTORS 

In July of each year the Board shall publish and 
distribute to all listed qualilied individuals a list- 
ing that shall include but is not limited to: 

(1) All appro\ed course sponsors and instruc- 
tors for that fiscal year; and 

(2) Brief descnption, number of contact hours, 
and course fee for each course to be pro- 
vided by approved course sponsors and in- 
structors. 

Statutoiy Authority G.S. 87-42; 87-44.1. 

.1107 ADNFRTISFMENTS BY APPRON ED 
COl RSE SPONSORS .\ND 
INSTRl CTORS 

Appro\cd course sponsors and instructors who 
state in their advertisements, brochures or other 
course descriptions that a particular course meets 
the requirement of the North Carolina Slate 
Board of Examiners of Electrical Contractors for 
continumg education shall so state exactly as 
follovss: 

Tliis course, when offered during fis- 
cal year , meets the rctjuire- 

ments of the North Carolina State 
Board of Examiners of Electrical 

Contiactors for contact hours 

of continuing education credit. This 
course is not sponsored by the Board. 

Statutory Authority G.S. 87-42; 87-44.1 . 

.1 108 KK\ OCAllOX OF COLRSF SPONSOR 
OR INSIRI C TOR .\PPROVAL 

(a) The Board ma)' re\oke, suspend or termi- 
nate the agreement with any approved continuing 
education course sponsor and or instructor if the 
lioard determines that cither has failetl to comply 
with the terms of the agreement or the Rules of 
the Board. 

(b) The Board shall have the authority to 
monitor courses to determine whether the course 
sponsor and instructor are complving with the 
terms of the aiireement and the rules o'i the 
Board. 

Statutory Auihority G.S. 87-42; 87-44.1. 



35S 



5:5 I\'ORTH CAROLL\A REGISTER .tunc 1, 1990 



FINAL RULES 



1 he List of Rules Codified is a listing of rules that were filed to be effective in the month indicated. 

JXulcs filed for publication in the MCAC may not be identical to the proposed text published pre- 
viously in the Register. Please contact this office if you have any questions. 

/xdoptcd rules filed by the Departments of Correction, Revenue and Transportation arc published 
in this section. These departments are not subject to the provisions of G.S. 1 508. .irticle 2 requiring 
publication in the N.C. Register of proposed rules. 

LJ pon request from the adopting agency, the text of rules will be published in this section. 

lunctuation, typographical and technical changes to rules are incorporated into the List of Rules 
Cotlifioil and are noted as * Correction. These changes do not change the effective date of the rule. 



HTLI: 17 - DI PARTMKNT OF REVENUE 

CHAPTER 6 - INDIMDL AL INCOME TAX DI\ ISION 

SLBCllAI'IKK 6A - DIVISIONAL RLLES 

.0002 GENERAL PI RI'OSES 

1 he indi\idu;il income tax division is responsible for administering Divisions II, III, IV and V of Ar- 
ticle 4, Schedule D, and Article 4A of Chapter 105 of the General Statutes of North Carolina, being the 
indi\idual income tax. the income tax of trusts, estates, and beneficiaries, income tax credits for prop- 
erty taxes, indi\idual income tax credits for qualified business in\estments, the withholding of inct)me 
tax from wages, and the filing ;md payment of estimated income tax b_\ in(.ii\ iduals. 

Iliston- Sote: Statutoiy .iulliority G.S. J05-/33 to 105-/6.124: 143B-10: 1 4.^-22 1: 
Eff Tebi-uaiy I. 1976: 
Amended Eff June I. 1990. 

.0003 ADMINISTRATIVE ORGANIZATION 

The indi\idual income tax division is administered by a director, and an assistant director for oper- 
ations, and a chief tax auditor for examinations. 'Ihere arc separate sections for handling different 
phases of the work and a separate section for handling income tax witliliolding. 

History Note: Statutory Autlwrilv G.S. 105-133 to 105-163.24: I43B-I0: I43B-221: 
Eff Eebruaty f 1976: 
Amended Eff .func I. 1990. 

.0004 IM)l\II)l AL INCOME TAX 

(a) In addition to the director, assistant director for operations, and a chief tax auditor for examina- 
tions, the administrati\e staff includes se\eral revenue administrative officers who assist in \arii)us 
overall phases of the work. 

(b) The clerical section is divided into processing units for handling, processing, and filing income tax 
returns and returns of estimated tax. Separate special units of temporary employees are set up during 
the filing and refund rush periods. 

(c) llie examinations section is composed of two examination groups, each being made up of audi- 
tors, tax technicians, support services personnel and supervisory personnel. 

IIistor\- Note: Statuto/y Authoritv G.S. 105-133 to 105-163.24: I43B-221: 143-10: 
Eff February /, 1976: 
Amended Eff June I. 1990. 



5:5 NORTH CAROLINA REGISTER June f 1990 359 



FINAL RULES 



SLBCHAPTER 6B - INDIVIDUAL INCOME TAX 
SECTION .0100 - FILING INDI\ IDLAL INCOME TAX RETURNS 
.0103 COMBINED REIl RNS 

Historv Sote: Statuton,' Authority G.S. I05-I52(e): 105-262; 
Eff. Fchman- I. 1976; 
Amended Eff. Febmary^ 4, 1978; 
Repealed Eff June I. 1990. 

.0104 ITEMS REQUIRING SPECIAL ATTENTION 

The individual taxpayer or his agent should gi\e special attention to the following items when pre- 
paring an individual income tax return; 

(1) The Form D-400 for the proper year should be used. 

Note: .\ 1985 form for a taxpayer whose calendar \car ends December 31. 1985 and a 1984 form 
for a fiscal \ear taxpayer whose fiscal \ear begins in 1984 should be used. 

(2) The name and current address of the taxpayer should be plainl_\ printed. The first name, middle 
initial and last name should be printed or t\ ped. When a preaddresscd form is used, any error in 
the name or address should be corrected. 

(3) \Mien filing an income tax return for an unmamed indi\ iduaJ who died during the taxable year, 
write "Deceased" after the indixiduals name on the return followed with the name and address 
of the executor or administrator. 

Note: John Doe (Deceased). Richard Doe. H.xecutor; 100 Oak Street. .-\n\'\\here. North Carolina, 
27000. 

(4) When fihng a separate return of a decedent who was married at the time of death, write "De- 
ceased" after the name and enter the name and address of the sun.i\ing spouse. The first two 
hundred dollars ($200.00) of any refund due on the return must be paid to the suniving spouse. 
If the refund is more than two hundred dollars ($200.00). the first two hundred dollars ($200.00) 
plus one-half of the remainder must be paid to the surviving spouse. The remaining refund is paid 
to the estate; therefore, the name and address of the administrator or executor must also be shown 
on the return. The refund due on a return of a sur\ i\ing spouse filing a joint return with the de- 
ceased will be made to the sur\i\'ing spouse. 

(5) The North Carohna law requires the taxpayer to furnish his social security- number with the re- 
turn. I his number is necessary to N'crify the identity of the taxpayer, smce the Department uses 
an accounting s\stem and equipment which identifies taxpayers and credits returns and payments 
by social security number. Separate returns of spouses are often inteiTclated whether they are 
li\mg together or apart: therefore, the taxpayer is asked to furnish the name and social security 
number of his spouse. This information can save time, correspondence, and difticulty tor the 
taxpayer and the Department. 

(6) The occupation should be entered so that the return may be properly coded. The general oc- 
cupational field should be shown rather than the specific job assignment. 

Note: The occupation for a "spinner" in a textile plant should be entered on the occupation line 
as "Textile" or "Te.xtUe Iimployee." 

(7) The name and address of your last emploN er should always be entered. 

(8) Each applicable line on page one of the tax return must be completed and the entering ot words 
or phrases, such as "unconstitutional" or "object - self incrimination" does not meet the require- 
ment of completing each applicable fine on the return. 

(9) The tax must be computed accurately, and in the case of a delinquent return, the penalty and 
interest prescribed h\ statute should be added. 

(10) If an individual has mo\ed into or out of .North Carolina during the tax >ear or is a nonresident 
with income from sources within North Carohna. the section on page 2 ot j-orm D-400, Compu- 
tation of North CaroLina Taxable Income tor Pai1-"\'ear Residents and Nonresidents must be 
completed. Credit for tax paid to another state is not allowed to an individual moving into or out 
of this state unless he has income deri\ ed from and taxed by another state or country w hile he is 
a resident of this state, (see Credit for Income Tax Paid to .\nother State or Countr\' 17 NC.AC 
6B .0607) 



560 5:5 NORTH CAROLINA REGISTER .fime 1,1990 



FINAL RULES 



(11) If a tax credit is claimed, there must be attached to the return a true copy of the return filed with 
the other state or country and a canceled check, receipt, or other proof of payment of tax to the 
other state or country. 

(12) Every return must be signed by the taxpayer or his or her authorized agent, and joint returns 
must be signed by both spouses. If husband and wife use different last names on a joint return, 
there will be a delay in processing any refund that may be due. A refund may be delayed by an 
unsigned return. 

(13) WTierc tax has been withheld, the state copy of the Wage and Tax Statement must be attached 
to the return. 

(14) Any additional information that will assist in the processing and auditing of a return should be 
indicated on the return or a worksheet or schedule attached to the return. 

( 15) Anyone who is paid to prepare a return must sign the return in the space provided. NVIien more 
than one person prepares a return, the preparer with primarv' responsibility for the o\erall accuracy 
of the return must sign as the preparer. The signature must be by hand. Stamps and labels are 
not acceptable. 

History \ole: Slatuton' Aulhority G.S. 2SA-/5-S; I05-I5I; 105-152; 105-154; 105-155; 
I05-I63'5(e); 105-163.7; 105-163.10; 105-251; 105-252; 105-262; 
Eff. Febmarv I, 1976; 
Amended Eff. June I. 1990: August I. I9S6; May I. I9S4: March 22. 198/. 

.0106 FFDFR U. FORMS 

If a taxpayer was required to file Federal Schedules A, B, C, D, F, and or F with his Federal income 
tax return, he must attach a copy of his Federal return, including all schedules, to the North Carolina 
return. 

Histofy .\'ote: Siatuto/y Auihontv G.S. J05-/55; 105-251; 105-252: 105-262; 
Eff Febman- I. 1976; 
Amended Eff June /, 1990: May I, 19S4. 

.0107 EXTENSIONS 

(a) An extension of time for filing may be granted in the case of sickness, absence, disability, or other 
good cause. When an extension of time has been granted for filing a federal return, a Like extension 
will be granted for filing the state return if a cop\" of either the appro\ed federal extension or a cop\' 
of the federal Fonn 4868, Automatic 4-Month Fxtension, is attached to the state return. A copy of 
the approved federal extension or a copy of the Federal Form 4868 should not be sent to the Depart- 
ment of Revenue until such time the State return is fdcd on the extended date. When a joint feder;il 
return is tiled, a separate copy of the approved federal extension fonn or federal Fonn 4868 must be 
attached to the return of each spouse if they file separately. No tentative tax payment is required by 
the state. If there is no federal extension, submit a request for extension in triplicate on Fiirm l)-410 
on or before the due date. 

(b) If a taxpayer is living or on military' duty abroad on the date his return is due, an extension of two 
months is automatically granted provided a statement is attached to the return showing that the tax- 
payer was living outside of the United States on the due date. Interest is due on an\ unpaid tax from 
the original due date until paid. 

History .\oie: Statutory Authority G.S. 105-263; 105-262; 
Eff Febmarv I, 1976; 
Amended Eff June 1, 1990: May I. 19S4; June 1. 1982; February 4. 1978. 

.0109 FILING RKQIIRFMFNTS - GFNFR.\L ST.VTEMENT 

I'he minimum gross income fihng requirements under North Carolina law are different from the tiling 
requirements under the Internal Revenue Code because North Carolina law does not adjust the 
standard deduction and personal exemption for inflation as required by the Internal Rexenue Code. 

History .\ote: Statutory Authority G.S. 105-1 34.6{c); 105-262; 
Eff June 1. 1990. ' 

.0110 INDI\ IDl ALS REQUIRED TO FIFE .\ N.C. INDI\ IDIAF INCOME TAX RETl RN 



5:5 NORTH CAROLINA REGISTER June 1. 1990 361 



FINAL RULES 



Residents and part-year residents of North Carolina arc required to file North Carolina returns if they 
are required to file Federal income tax returns for the taxable year, excluding the applicable Federal 
standard deduction and personal exemption inflation adjustments. Nonresidents who derive income 
from North Carolina sources are required to file North Carolina returns if they are required to file 
Federal income tax returns for the taxable year, excluding the applicable Federal standard deduction 
and personal exemption inflation adjustments. 

History Sole: Stalutorv Authority G.S. 105-152: 105-262; 
Eff. June I, 1990. ' 

.0111 MIMMl M GROSS INCOME MI.ING KEQL IKEMENTS 

(a) The minimum gross income filing requirements for most people are shown in Chart A: 

CHART A - FOR MOST TAXPAYERS 

(1) Single $ 5,000 

Single (aiie 65 or over) 5,750 

(2) Married ^ Filing Joint Return $ 9.000 

.Married - Filing Joint Return, 

(one age 65 or o\'cr) 9,600 

Married - Filing Joint Return, 

(both age 65 or over) 10.200 

(3) Mamcd - Filins Separate Return $ 2.000 

(4) Head of Household $ 6,400 

Head of Household (age 65 or over) 7,150 

(5) Qualifymg Widow(er) with dependent child $ 7,000 

Qualifying vvidow(er) (age 65 or over) 7,600 

(b) If an individual was not required to tile a Federal income tax return but had gross income inside 
and outside of North Carolina that equals or exceeds the amounts in Chart A. a Federal return must 
be completed and attached to the North Carolina return to show how the negative Federal taxable in- 
come was determined. 

(c) Fhe minimum gross income tiling requirements for children and other dependents are shown in 
Chart B. The fiUng requirements in Chart B general!)- are applicable to those indi\iduals who can be 
claimed as a dependent by another person (such as a parent). 

Note: EARNED INCOME is salaries, wages, tips, professional fees, and other amounts received as 
pay for work actually done. 

Note: UNF.ARNFD INCO.MF is income other than earned income (salaries or wages). It is 
in\estment-type income and includes interest, dividends, and capital gains. Distributions of interest, 
dividends, capital gains, and other unearned income from a tiaist are also unearned income to a bene- 
ficiary of the trust. 

CHART B - FOR CHILDREN AND OlIIER DEPENDENTS 

(1) Single dependents neither blind nor 65 or older - ^'ou must file a return if: 

(A) ^'our unearned income was one dollar ($1.00) or more and the total of that income plus your 
earned income was more than five hundred dollars ($500.00). 

(B) \'our unearned income was zero dollars ($0.00) and the total of that income plus )our earned 
income was more than three thousand dollars ($3,000). 

(2) Single dependents 65 or older or blind - You must file a return if: 

(A) "^'our earned income was more than three thousand seven hundred fifty dollars ($3,750) [four 
thousand fi\e hundred dollars ($4,500) if 65 or older and blind], or 

(B) \'our unearned income was more than one thousand two hundred fift\' dollars ($1,250) [two 
thousand dollars ($2,000) if 65 or older and blind), or 

(C) \'our gross income was more than the total of your earned income [up to three thousand 
dollars ( $3.000 )j or five hundred dollars ($500.00), whiche\er is larger, plus se\cn hundred fifty 
dollars ($750.00) (one thousand \'\\c hundred dollars ($1,500) if 65 or older and blind]. 

(3) Married dependents neither blind nor 65 or older - You must file a return if: 

(A) \'oux earned income was more than two thousand fi\e hundred dollars ($2,500). or 



^62 5:5 NORTH CAROLINA REGISTER June l, 1990 



FINAL RULES 



(B) You had any unearned Lncomc and your gross income was more than five hundred dollars 
($500.00), or 

(C) Your gross income was at least five dollars ($5.00) and your spouse files a separate Federal 
income tax return on Form 1040 and itemizes deductions. 

(4) Married dependents 65 or older or blind - You must file a return if: 

(A) Your earned income was more than three thousand one hundred dollars ($3,100) (tliree 
thousand seven hundred dollars ($3,700) if 65 or older and blind], or 

(B) Your unearned income was more than one thousand one hundred dollars ($1,100) [one 
thousand seven hundred dollars ($1,700) if 65 or older and blind], or 

(C) ^'our gross income was more than the total of your earned income [up to two thousand five 
hundred dollars ($2,500)], or five hundred dollars ($500.00), whichever is larger, plus six hundred 
dollars ($600.00) [one thousand two hundred dollars ($1,200) if 65 or older and blind], or 

(D) "^'our gross income was at least five dollars ($5.00) and your spouse files a separate Federal 
income tax return on Form 1040 and itemizes deductions. 

(d) If an Lndi\idual is required to file Federal Schedules A, B, C, D, F, and or F with his Federal 
income tax return, he must attach a copy of his Federal return, including all schedules, to his North 
Carolina income tax return. A nonresident or part-year resident is required to attach a copy of his 
Federal return to the North Carolina return regardless of whether or not F-ederal Schedule A, B. C, 
D, F, and or F was filed. 

llistorv Note: Statutmy Authoriiv G.S. 105-134.2; 105-134.5; I05-I34.6{c); 105-152; 105-262; 
Eff. June I. 1990. ' 

.0112 JOINT RETLRNS 

(a) G.S. 105-152.1 requires that a husband and wife file a joint State return if 

(1) Ihey file a joint Federal income tax return, and 

(2) Both spouses are residents of North Carolina or both spouses liad North Carolina taxable in- 
come. 

All other individuals must file separate returns. 

(b) On joint returns, both spouses are jointly and severally liable for the due. However, if a spouse 
has been relieved of any liability for Federal income tax under the Internal Revenue Code as an "in- 
nocent spouse" attributable to a substantial understatement by the other spouse, the "innocent 
spouse" would not be liable for the State income tax attnbutable to such understatement by the other 
spouse. 

(c) If an individual and his spouse file a joint return using different last names, the)' should separate 
the names with "and". For example, "John Brown and \lar>' Smith". 

(d) If an indi\idual files a joint Federal return but files a separate North Carolina return, he must 
complete a separate Federal return and attach it to his North Carolina tax return to show how his 
Federal taxable income would be determined on a separate Federal return. In lieu of completing a 
separate Federal return, an indi\idual may submit a schedule showing the computation of the separate 
Federal taxable income provided a copy of the joint Federal income tax return is provided with the 
North Carolina return. 

Iliunrv Note; Statiito/y Authority G.S. 105-/52./; / 05-262; 
Eff. June I. /990. 

.01 13 1 AXI'AM RS ntniK 11 ID IN COMMl Nil ^ PROI'KK IV S T A I KS 

(a) Generally, if a husband and wife file separate returns, each must claim credit for the actual amount 
of tax w ithheld from his or her salary or wages. If a husband and wife who are domiciled in a com- 
munity property state or country recognized as such for federal income tax puiposcs tile separate North 
Carolina returns and each spouse reports one-half of the salar>' and wages received while domiciled in 
the communitN property state or countrv', each spouse is entitled to claim one-half of the credit fir the 
income tax withheld with respect to such community wages. 

(b) A schedule or statement should be attached to the North Carolina return showing the name and 
social security number of each spouse and that they were domiciled in a community property state and 
as such, 50 percent of the husband's and, or wife's income tax withheld is allocated to the other spouse's 
income tax return. 



History Note; Statutoty Aut/writy G..S. /05-/63./0; /05-262; 



5:5 NORTH CAR()LIN.\ REGISTER June 1,1990 .?6.? 



FINAL RULES 



Eff. June I. 1990. 

.0114 COMPL TATION OF TA.XABLK INCOME - GENKRAL 

The starting point in determining North Carolina taxable income is taxable income for F'edera] income 
tax purposes determined under the Internal Re\enue Code in effect as of Januar>' 1, 1989, subject to 
the following additions, deductions and transitional adjustments which are required because of differ- 
ences in the way State and Federal law treated certain tax transactions prior to Januar>' 1, 1989. These 
adjustments do not apply to all individuals; however, each individual should determine if any of the 
adjustments apply to his return. 

Ilisioiy Sole: Staiuion' Auihority G.S. 105-134.1; 105-134.5; 105-134.6; 105-134.7; 
Eff. .hme I, 1990. 

.01 15 AODH IONS TO FEDER.\L T.V\.\BLE INCOME 

(a) Federal taxable mcome must be increased by the following additions to the extent the amounts 
are not included m Federal gross income: 

( 1 ) Interest received upon obligations of states other than North Carolina and their political subd- 
i\isions; 

(This addition mcludes that portion of an exempt interest di\ idend from a regulated investment 
company (mutual fund) that represents interest on du'cct obligations of states and theii' political 
subdivisions other than North Carolina. See 17 NCAC 6B .4100 for additional information on 
regulated investment companies.) 

(2) Any amount allowed as a deduction from gross income that is taxed by a separate tax under the 
Internal Revenue Code. Ihis would include lump-sum distributions from certain employee's 
retirement plans which a taxpayer may elect to exclude from taxable income in the regular tax 
computation and compute the tax scp;irately using the favorable tcn-\car and five-year forward 
a\ eraging rules; 

(3) State, local, and foreign income taxes deducted on the Federal return; 

(4) The Federal standard deduction inJlation adjustments for ta.xable years beginning after 19S8 and 
the Federal personal exemption inflation adjustments for taxable years beginning after 1989. 
These adjustments are necessap," because the Federal standard deduction amounts and personal 
exemption amounts wiU be adjusted each year, if necessarv', for inflation. 

(b) The standard deduction for North CaroUna purposes is shown in the schedules in tliis Paragraph: 

SCIIFDULE A 

Individuals who arc not claimed as dependents by another taxpayer 

FIFING STATUS S lANn.VRI) 

DI DlCriON 

Single $ 3.000 

65 or older or blind 3,750 

65 or older and blind 4.500 

.\Iamed Filing Jointly Qualifying Widow (er) 5.000 

One Spouse 65 or older or blind 5.600 

One Spouse 65 or older and blind 6,200 

Both spouses 65 or older or blind 6.200 

Biith spouses 65 or older and blind 7,400 

* Married Filing Separately 2,500 

65 or older or blind 3,100 

65 or older and blind 3,700 

Head of Household 4,400 

65 or older or blind 5,150 

65 or older and blind 5,900 

SCIll DUI F B 

Indniduals who can be claimed as dependents bv another taxpa\er who have earned income of 

$500.00 or less 

FIFING S FATUS S lANIlXRH 



i64 5:5 iXORTH CAR()LL\.A REGISTER June L 1990 



FINAL RULES 



DEDUCTION 

Single 

Under 65 and not blind $ 0,500 

65 or older or blind 1,250 

65 or older and blind 2,000 

*Married I-iling Separately 

Under 65 and not bli^d 0,500 

65 or older or blind 1,100 

65 or older and blind 1,700 

SCIIFDUl.n C 

Iiidi\iduals who can be claimed as dependents by another taxpayer and have earned incoine of 

$500.00 o'r more 



AMT OF 

FARNFD 

INCOME 


ADDITIONAL 
ALLOWANCES 


LIMIFFD 
TO 


$ 


+ $ -0- - 
+ $ 750 
+ $1,500 


$3,000 


$ 
$ 


$3,750 
$4,500 


$ 


+ $ -0- 
+ $ 600 
+ $1,200 


$2,500 


$ 


$3,100 


$ 


$3,700 



STANDARD DEDUCTION 



FILING STATUS 

Single 

Under 65 and not blind 

65 or older or blind $ 

65 or older and blind $ 

*Mamed Filing Separately 

Under 65 and not blind 

65 or older or blind 

65 or older and blind 

*The standard deduction is zero for a married indi\ idual fding separately whose spouse claims itemized 
deductions. 

(c) Fhe standard deduction for nonresident aliens and individuals tiling a short-year return due to a 
change of accounting period is zero. 

llistorx- \ote: Statuloiy Authoritv G.S. 105- 134.6(c): 105-262; 
Eff. June I. I')<)0. 

.01 16 DEDLCTIONS FROM FEDF.R.VL T.VXAULE INCOME 

Federal ta.\ablc income must be decreased by the foOowLng deductions to the extent the amourits are 
included in Federal gross income: 

(1) Interest upon obligations of the Fnited States or its possessions; 

Interest earned on obhgations that are merely backed or guaranteed by the United States Gov- 
ernment will not qualify for deduction from an individual's income. Fhe deduction from income 
will not apply to distributions which represent gain from the sale or other disposition of the secu- 
rities, nor to interest paid in connection with repurchase agreements issued by banks and savings 
and loan associations. 

(2) Interest on bonds, notes, and other obligations of the State of North Carolina or any of its pol- 
itical subdivisions; 

(3) Interest on obligations and gain from the sale or disposition of obligations if North Carolina law 
under which the obligations were issued specifically exempts the interest or gain; 

(4) Social Security benefits received under Title II of the Social Security Act and Railroad Retirement 
benefits received under the Raihoad Retirement Act of 1937; 

(5) Up to fifteen hundred diillars ($1,500) paid to an individual as compensation for the peifonnanee 
of duties as a member of the North Carolina National Guard; 

(6) Refunds of State, local, and foreign income ta.xcs; 

(7) L'p to four thousand dollars ($4,000) in retirement benefits from one or more Federal, state, or 
local government retirement plans; 

(8) Up to two thousand dollars ($2,000) in retirement bcnehts from one or more pnvate retirement 
plans; 



5:5 NORTH CAROLINA REGISTER .June 1,I9<M) 365 



FINAL RULES 



(a) If an individual receives Federal, state, or local government retirement benefits and also receives 
other qualified retirement benefits, the total deduction is limited to four thousand dollars 
($4,000). lor married couples filing a joint return, the maximum dollar amount of retirement 
benefits that may be deducted from Federal taxable income appUes separately to the benefits 
received by each spouse, so that the maximum deduction on a joint return is eight thousand 
dollars ($8,000). 

(b) If an individual received retirement benefits during the year from one or more private retirement 
plans other than state, local, or Federal government retirement plans, he may deduct the amount 
received or two thousand dollars ($2,000), whichever is less. .Married indi\-iduals filing a joint 
return where both received such retirement benefits may each deduct up to two thousand dollars 
($2,000) for a potential total deduction of four thousand dollars ($4,000). 

(c) "Retirement benefits" are amounts paid to a former employee or to a beneficiaiy of a former 
employee under a written retirement plan established by the employer to provide payments to 
an employee or beneficiary after the end of the employee's employment uith the employer where 
the riglit to receive the payment is based upon the employment relationship. For self-employed 
indi\iduals, retirement benefits are amounts paid to an indi\idual, or beneficiar\' under a written 
retirement plan established by the individual to provide payments after the end of self- 
employment. Retirement benefits also include amounts received from an individual retirement 
account or from an indi\idual retirement annuity (IRA), both of which are described in Section 
408 of the Internal Revenue Code. An individual is not required to ha\'e ceased employment 
to qualify for the two thousand dollar ($2,000) deduction for distributions from an indi\idual 
retirement account or an indi\idual retirement annuity. 

(d) The deduction for retirement benefits is allowed only to the extent the benefits are included in 
federal gross income. If an indi\idual elects to roll-o\er the distribution from his emplo\er's 
plan or from his individual retirement account, no deduction is allowed since the amount rolled 
over is not included in gross income. 

(e) A change in the structure of a corporate employer which causes a distnbution to be paid to the 
employee from the employer's retirement plan does not entitle the employee to claim the de- 
duction for retirement benefits from such distribution. For example. Company A is merged 
with Compan>" B. An employee of A continues to work for the merged company. During 1989, 
the employee received a distribution of five thousand doUars ($5,000) representing his total credit 
in the non-contributory retirement plan of Company A. The employee \\ ould not be entitled 
to the two thousand doUar ($2,000) deduction since he had not ceased employment. 

(f) Since short-term disability benefits from the Disability Income Plan of North Carolina adminis- 

tered for the benefit of North Carolina teachers and State employees are not paid to a former 
employee under a retirement plan after the end of the employee's employment, the benefits are 
not subject to the four thousand dollar ($4,000) deduction from Federal taxable income. 
Long-term disability benefits are payable after the conclusion of the shoil-temi disabihty period 
or after salarv' continuation payments cease, wliichever is later. Recipients of long-term disa- 
bility benefits under the Disability Income Plan of North Carolina are former employees and 
they are entitled to the four thousand doUar ($4,000) deduction from Federal taxable income. 

(g) Benefits paid to Federal civil service employees who become disabled prior to becoming age 60 
upon separation from service arc paid to a former employee under a retirement plan after the 
end of the employee's employment and are subject to the four thousand doUar ($4,000) de- 
duction from F'ederal taxable mcome. 

(h) Survivors of a member of the armed forces who recei\e benefits from the Retired Serviceman's 
Family Protection Plan or the Sur\ivor's Benefits Plan as the result of taking a reduction in re- 
tirement pay are subject to the deduction of up to four thousand dollars ($4,000) from Federal 
ta.xablc income; 
(9) 'I'he amount of North Carolina inheritance tax paitl that is attributable to an item ol' income in 
respect of a decedent. 

'1 he deduction from f-ederal taxable income is determined by multiplsing the amount ot North 
Carolina inheritance tax paid on all property transfcned to the particular beneficiarv', less the North 
Carolina inheritance tax paid if the item of income in respect of a decedent had not been included, 
by a fraction, the numerator of which is the income in respect of a decedent the benefician' in- 
cluded in Federal gross income, as adjusted, and the denominator of which is the total income in 
respect of a decedent transferred to the beneficiar) ; 



366 5:5 NORTH CAROLL^'A REGISTER June I, 1 990 



FINAL RULES 



(10) Income earned by an enrolled member of the Tastem Band of Cherokee Indians or other 
federally recognized tribes if such income is derived from activities on the Cherokee reservation 
while the member resided on the reservation. 

History Note: Statuiorv Authoritv G.S. /05-/34.6(b); 105-262; 
Eff. June I. 1990. ' 

.0117 IRANSniONAI, AD.M STMEMS 

The following transitional adjustments arc required because of differences in the way State and Federal 
law treated certain tax transactions prior to January' 1, 1989. 

(1) Amounts that were included in the basis of property under Federal law but not under State law 
prior to January 1, 1989, must be added to taxable income in the year of disposition of the prop- 
erty. These adjustments include the increase in basis for Federal gift tax paid on property received 
as a gift and in certain cases where the indi\idual was pennitted under Federal law to capitalize 
certain expenditures for interest and taxes. 

(2) Amounts that were included in the basis of property under State law but not under Federal law 
prior to January 1, 1989, must be deducted from an indi\iduars taxable income in the year of 
disposition of the property. Deductions of this type include the increase in basis for State gift tax 
paid on property rccei\'cd as a gift and certain business expenditures that an individual elected to 
expense under Section 179 of the Internal Revenue Code but which were required to be capitalized 
for State income tax purposes. 

(3) Amounts recognized as income under Federal law but not under State law prior to Januaiy 1, 
1989, because of the use of the installment method for reporting gain from the sale of property 
must be added to taxable income in the individual's first taxable year beginning on or after January 
1, 1989. Amounts recogni7.ed as income under State law but not under Federal law prior to Jan- 
uary 1, 1989, because of the use of the installment method for reporting gain from the sale of 
property must be deducted from taxable income in the indi\iduars first taxable ye;ir beginning on 
or after January 1, 1989. 

(4) A loss or deduction that was incurred or paid and deducted in full for Noilh Carolina income 
tax purposes under prior State law in a taxable year beginning before January' 1, 1989, but was 
carried forward and deducted from Federal taxable income in a taxable year beginning on or after 
January' 1, 1989, must be added to taxable income. 

In determining the amount to add back, a capital loss from taxable \'ears beginning prior to Jan- 
uary 1, 1989, must be applied before applying a capital loss that was sustained in a taxable year 
beginning on or after January 1, 1989. 

EXAMPLE: The full amount of a capital loss incurred in 1988 would ha\'e been deductible on 
an individual's 1988 State income tax return but on his I'ederal income tax return the amoimt of 
the deductible loss would have been limited to his capital gains plus three thousand dollars (fi.VonO) 
(one thousand ti\e hundred dollars ( $ 1 ,500) if married and tiling a separate return]. Any remaining 
loss could be carried forward to 1989 and deducted on his Federal income tax return in computing 
his 1989 Federal taxable income. In this instance, the indi\'idual must add back the loss deducted 
from his 1989 Federal taxable income in arriving at the amount of his North Carolina taxable in- 
come. 

[An indi\idual had a six thousand fne hundred dollar (lih.SOO) capital loss in 1988 which was 
limited to three thousand dollars (S.VOOO) on his Federal income tax return but which was de- 
ducted in fuU on the State return. An additional net capital loss was also incurred in 1989. Since 
the individual's 1989 Federal taxable income would include a three thousand dollar ($3,000) loss 
carry-over the individual must add back three thousand dollars ($3,000) to Federal taxable income 
on the 1989 State return. The remaining fne lumdred dollars ($500.00) would be added back to 
the individual's Federal taxable income for 1990.| 

EXAMPLE: Prior State law required charitable contributions to be deducted in the year they 
were paid and did not permit any amount to be carried o\er to another tax \ear. Lnder Federal 
law, an indi\idual who may not be entitled to deduct the full amount of cert.:iin contributions be- 
cause of an adjusted gross income limitation may carr\' over the unused portion to the succeeding 
tax ye;ir. In tliis situation, the individual must add back to Federal taxable income the contrib- 
utions carry-over from 1988 if he itemized deductions on his 1989 Federal income tax return. 
EXAMPLE: Generally, for Federal income tax purposes for tax years beginning on or after Jan- 
uary' 1, 1987. to the extent that the total deductions from passive activities exceed the total income 
from such activities for the tax year, the excess (passive activity loss) is not allowed as a deduction 



.5.-5 NORTH CAROLINA REGISTER June L 1990 367 



FINAL RULES 



for that \ear. A disallowed passive loss is allowed to be carried fonvard as a deduction from pas- 
si\e activity income in the next succeeding tax year. Generally, losses from passive activities may 
not be deducted from other types of income (e.g., wages, interest, or dividends). A passive activity 
is one that in\oh'es the conduct of any trade or business in which the taxpayer does not materially 
participate. .Any rental acti\ity is a passive activity regardless of whether the taxpayer materially 
participates. Special rules apply to rental activities. Under State law, a passive loss carried forward 
from a tax year beginning prior to January 1, 1989, must be added back to Federal taxable income 
since the entire loss was deductible on the taxpayer's return for the year the loss was incurred. 

(5) .^mounts deducted on an individual's Federal income tax return as net operating losses brought 
forward from tax years beginning prior to January 1, 1989, must be added to Federal taxable in- 
come. For tax years prior to Januar.' 1, 1989, State law allowed a net economic loss to be carried 
forward to subscc^uent years but was computed differently from the Federal net operating loss. 
Prior State law did not permit the loss to be carried back to prior tax years as did Federal law. 
EXAMPLE: ,\n individual sustains a business loss of one hundred thousand dollars ($100,000) 
in 1988, had no other business income or business expenses for that year, and received interest 
income of eighty-two thousand dollars ($82,000) from City of Raleigh bonds during the taxable 
year. For Federal income tax purposes, the indi\'idual would have sustained a net operating loss 
of one hundred thousand dollars ($100,000). If the indi\idual had no income in the prior three 
tax years to offset the net operating loss, he could carry the one hundred thousand dollar 
($100,000) loss for>vard and deduct it as a net operating loss on his 1989 Federal income tax return. 
Under prior State law. the indi\-idual would ha\-e incurred a net economic loss of eigliteen thou- 
sand dollars ($18,000) [business loss of one hundred thousand dollars ($100,000) less nontaxable 
income of eighty-two thousand dollars ($82,000)1 that could be carried forward to 1989. In this 
situation, the indi\idual must add back the net operating loss deduction to his Federal taxable in- 
come. 

(6) If an indi\ idual recovered all or an\ portion of his contributions to an annuit\' for State income 
tax purjioses for taxable years beginning pnor to Januar.' 1. 1989, but such amount was not re- 
coN'cred for federal income tax purposes, he must include a ratable portion of the difference in the 
cost previously recovered for North Carolina purposes and the amount previously reco\cred for 
Federal purposes on the North Carolina return for each year beginning on or after Januars' 1 , 1989. 
EXAMPLE: Both the employee and the employer contributed to the cost of the employee s an- 
nuity and the employee will recover his contribution within three years from the annuity starting 
date. For tax years beginning prior to Januar\' 1, 1989. the employee was entitled under State law 
to recover his contributions to the annuity in full before being taxed on the benefits. The ratable 
portion to be added to Federal taxable income is determined as follows: 



Amount reco\"ercd .Amount recovered 

on State return - on Federal return = Addition to 



Remaining "^'ears Life Expectancy Taxable Inc(ime 

If the cost reco\ered for federal income tax purposes for taxable \cars beginning pnor to JanuaPv 
1, 1989, is greater than the cost rcco\'ered for State income tax purposes for years prior to 1989, the 
ratable portion to be deducted from federal taxable income is detennincd as follows: 

Amount reco\ered .Amount recoN'cred 

on Federal return - on State return = Deduction from 



Remaining ^'ears Life Expectancy Taxable Income 

The amount of difference in the numerator of the fractions in this Subparagraph should reflect the 
cost recovered during the taxpayer's period of residence in North Carolina and exclude any cost 
recovered during residence in another state. In the denominator, the remaining years life expectancy 
to be entered is the life expectancy delennined for federal income tax purposes for the year the an- 
nuity startcii less the number of tax years the annuity was reportable for federal tax purposes prior 
to January 1, 1989. 1 he amount of the transitional adjustment computed for the tax \ear 1989 
will remain the same for each year of the indi\idual's remaining life expectancy. 
This transitional ;idiustment will not apply to retirement annuities from an_\' federal retirement 
program which were taxed unconstitutionalK prior to Januar\' 1, 1989. and to annuities which were 
exempt under prior State law, including retirement annuities from the North C;uolina I'eachers' and 



36S >:5 SORTH CAROLINA REGISTER Jimc 1,1990 



FINAL RULES 



State Fmployees' Retirement System and the North Carolina Local Governmental Employees' 
Retirement System. Also, this transitional adjustment will not apply to retirement annuities re- 
ceived by former teachers and state employees of other states which were fully exempt from North 
Carolina income tax prior to January 1, 1989, because the other state had no income tax law or 
practiced reciprocity with North Carolina with respect to taxing such benefits. 
This transitional adjustment will apply to retirement annuities received by former teachers and state 
employees of other states which were not fully exempt because those states practiced no reciprocity 
or only partial reciprocity with North Carolina with respect to such benefits for taxable years be- 
ginning prior to January 1, 1989. The amount of cost recovered on the North CaroUna return prior 
to Januap,' 1, 1989, to be used in the formula for computing the addition to federal taxable income 
is to be computed without considering any benefits which were excluded as the result of partial 
reciprocity. 

(7) Net economic losses sustained in the tlvc taxable years preceding an individual's first taxable year 
beginning on or after January 1, 1989, may be carried forward and deducted from taxable income 
as under prior law. I 'nder prior law, a net economic loss could be carried forward for up to five 
years. The law defines a net economic loss as the amount by which allowable deductions for the 
year other than personal exemptions, nonbusiness deductions and prior-year losses exceed income 
from all sources in the year, including any nontaxable income. 

(8) A Federal net operating loss for a taxable year beginning on or after January- 1, 1989, carried back 
for Federal income tax purposes to a taxable year beginning before January 1, 1989, may be de- 
ducted from North Carolina taxable income in the taxable year following the taxable year in which 
the loss occurred. 

(9) Adjustments must also be made in the taxable income of a shareholder of an S coiporation. (See 
17 NCAC 6B .4000) 

( 10) When a parent elects to report his child's unearned income, the child is treated as having no gross 

income for the year and is not required to file a Federal income tax return. A parent electing to 

report a child's unearned income for Federal tax purposes must add back to his Federal taxable 

income the amount of the child's unearned income in excess of five hundred dollars ($500.00) but 

not exceeding one thousand dollars ($1,000). 

Other additions and deductions to Federal taxable income may be required to ensure that the transition 

to the new tax law does not result in the double taxation of income, the exemption of otherwise taxable 

income or double allowance of deductions. 

Histoiy Sotc: Statutnn Aut/iority G.S. 105- 1 34.7: 105-262: 
Eff. June I. 1990. ' 

SECTION .0.«)0 - ['EkSON.^L EXFMI'TION 

.0.^01 (;knkral 

.0.102 0\V. lll()LS.\Nn ONE lIlNDKEn DOI.EAK PERSON. \l. EXEMPEION 

.0.103 rWO I IIOl S AND I W O III NDKEI) DOEEAK PERSON AE EXEMPEION 

.0.104 UEINI) PERSONS 

.0.105 INDIMDEAES AGE 65 OR 0\ ER 

.0.106 SE\ EREEY REEARDEI) DEPENDENT 

.0.107 IIEMOPIIIEIACS 

.0.108 EXEMPIION FOR DEPENDEN ES 

.0.109 DEPENDENT IN INSII EETION OE HIGHER I.E.\RNING 

.0.110 DE( EASED OR IN( OMPEJ EN I INDIMDEAES 

.0311 PRORAIED PERSONAL EXEMPIION 

.0312 OIHER (ONSIDERAIIONS 

Histoiy Sole: Slatutoiy .lul/ioritv G.S. 105-135: 105-149; 105- 149(a)(2): 105- I49{a>{4): 

I05-I49(a){5): I05-/49(al(6 ): I05-I49(a)(7 ): l05-l49(a)(S): I05-I49(a}(9}; 

/05-!49(a)( /O): /05-/49(a)(2a>: l05-l49(a)(Sa): I05-I49{h): 

105- 149(c); 105-262; 

Eff. FchniMy I. 1976; 

.-[mended Eff. Febniaiy I. I9S9; Xovcmbcr I. I9SS: .Iw^usl I. I9S6; Mav I, I9S4; 

Repealed Eff June I. 1990. 

.0313 DEAF INDIVIDUALS 
.0314 REN.VE DISEASE 



5:5 NORTH C.iROLIN.^ REGISTER Jtuw 1,1990 .^69 



FINAL RULES 



Ifistory Note: Statutory Authority OS. I05-I49ia)(8b); I05-I49(al(8c): 105-262; 
Eff. February II, 1978; 

Amended Eff. November I, 1988; April 19, 1981; 
Repealed Eff June I, 1990. 

.0315 PARAPLEGICS 

llistoty Note: Statutor\- Authority G.S. I05-I49(a)(8d); 105-262; 
Eff April 19. l9Sf; 

Amended Eff November I. 1988; February I, 1988; 
Repealed Ejf. June I. 1990. 

.0316 CYSTIC FIBROSIS 

.0317 SPINA BIFIDA 

.0318 ML LTIPLE SCLEROSIS 

.0319 SE\ ERE HEAD INJLRY 

llistoty .\ote: Statutory^ Authority G.S. I05-I49(a)(8e); I05-I49(a)(8f); l05-l49fa)fSgJ; 
I05-I49(a)(8h); 105-262: 
Eff .August I, 1986; 
Amended Eff. November I. 1988; 
Repealed Eff June I, 1990. 

.0320 MLSCLLAR DYSTROPHY 

.0321 ORGAN AND TISSUE TRANSPLANTS 

History Note: Statutory Authority G.S. I05-I49{a); 105-262; 
Eff November I. 1988: 
Amended Eff December 1. 1988; 
Repealed Eff June I. 1990. 

SECTION .0400 - ANNL ITIES AND PENSIONS 

.0401 GENERAL 

.0402 GENERAL RM ES FOR ANNL ITIES 

.0403 SPECIAL RLl E 

.0404 \ ARIABLE ANNl ITIES 

.0405 GLARANIEED PAYMENTS 

.0406 LLMP SLM 

.0407 INSTALLMENT OPTIONS 

.0408 FEDERAL EMPLOYEES PENSIONS 

History Note: Statutory: Authority G.S. 105-141.1; 105-141 (b )(2) : 105-141 1 b /{ 14 /; 
l05-14l(b)(lSj; I05-I41(bi(20i: I05-I41ici: I05-I4I.I i dji3 ); 
105-141. Kg); 105-262; 
Eff Febnmry 1, 1976; 

Amended Eff November I. 1988; .May I, 1984; June I. 1982; March 22. 1981; 
Repealed Eff June I. 1990. 

SECTION .0500 - DI\ ORCED OR SEPARAIED PERSONS 

.0501 GENERAL 

History Note: Statutory Authority G.S. 105-141.2; 105-147 [21); 105-262; 
Eff February I. I9'6: 

Amended Eff. Auqust I. 1986: .March 22. 1981; 
Repealed Eff. June I. 1990. 

SECnON .0600 - TAX ( REDIIS 



370 5:5 NORTH CAROLINA REGISTER June 1,1990 



FINAL RULES 



.0601 (;EMiRAL 
.0602 KKSIDENTS 
.0603 NONRESIDENTS 

History Note: Statutory Authority G.S. 105-130.4; 105-134; 105-135(13); 105-141 (a); I05-I42(c); 
105-147(9); 105-147(18); I05-I49(b); 105-151; 105-262; 
Eff. February I, 1976; 

Amended Eff. November I. I9SS; August I, 1986; May I, 1984; June I. 1982; 
Repealed Eff June I, 1990. 

.0605 SOLAR ENERGY TAX CREDIT 

(a) A credit is allowable to a corporation or an individual, including an individual member of a 
partnership who causes to be constructed or installed a solar hot water, heating or cooling system in 
any building in North Carolina. The credit is limited to 25 percent of the installation and equipment 
cost of each system, up to a maximum credit of $1,000 per system or per year on any single building 
or for each family dwelling unit of a multi-dwelling building. Installation of two systems in the same 
year which work independently of each other in one building will be limited to a maximum % 1 ,000 
credit. However, if two systems working independently were installed in separate years, then an al- 
lowable credit, not to exceed $1,000 each year, would be allowed for each system. 

(b) The owner who first occupies a newly solar-equipped building or the owner-lessor w'ho first leases 
the building for use after construction or installation will be allowed the tax credit. The credit is only 
allowable to the individual who owns or controls the building at the time of installation. Only one 
credit is allowed per system, regardless of the number of subsequent owners or owner-lessors. The cost 
of repairs to an existing solar system will not qualify for any additional tax credit; however, enhance- 
ment to an existing solar system could qualify for additional credit provided the individual has not yet 
exceeded the maximum $1,000 credit allowed for the system. 

(c) The cost on which the credit is based is the sales price less discounts, rebates, advertising, instal- 
lation assistance, and name referral allowances paid to the purchaser and/or someone he or she desig- 
nates, other similar reductions, and/or the fair market value of items given as inducements to purchase 
a solar energy system. If the allowable credit exceeds the tax liahihty for the year after being reduced 
by all other credits, the unused portion of the credit may be carried over the next three succeeding years. 
In the case of property owned by the entirety, where both spouses are required to file North Carolina 
income tax returns, the credit may be claimed only if the spouses file a joint return. 

(d) A system is not a solar energy system for purposes of the tax credit until it is installed and fully 
functional. If an individual has paid for the system, but it is not yet installed and available for use 
during the year, no credit is allowed for North Carolina tax purposes until the year in which the system 
is placed in service. 

(e) Equipment, components, and other items not qualifying for the solar energy credit for State tax 
purposes includes: 

(1) Insulation (except where otherwise noted in these guidelines). 

(2) Storm windows and storm doors. 

(3) Wood burning stoves and furnaces. 

(4) Oil and gas furnaces, including replacement burners and ignition systems labeled as "energy ef- 
ficient". 

(5) Automatic set back thermostats. 

(6) Ileat pumps, including both air and water-source units. 

(7) Evaporative cooling systems. 

(f) Solar energy is energy that is deri\ed directly from sunliglit (solar radiation). Solar energy property 
is equipment that uses solar energy to heat or cool a building or to provide hot water for use within the 
building. Solar energy property includes "active" and "passive" solar energy systems. 

(g) An individual claiming a solar tax credit must designate on his or her North Carolina income tax 
return the type of solar system installed. 

(1) An active solar energy system is a system capable of collecting and converting solar radiation into 
heat and transferring the heat to storage or to the point of use. Any solar system which has a 
fan, pump, or other mechanical means of mo\ ing the collection medium in the collection loop 
of the system, is an active solar system. While the components, design, operation, and per- 
formance of active systems will var\ , in order to qualify for the tax credit the system must have 
the following capabilities; 
(A) A means of collecting and,'or absorbing sunliglit to heat liquids or air. 



5:5 NORTH CAROLINA REGISTER June L 1990 371 



FISAL RULES 



(B) Thermal storage media which arc specifically designed and constructed for storage of solar 
cnerg\' such as tanks to store hot liquids and or rock beds to store hot air. 

(Cj Controls to acti\'ate fans or pumps that circulate the hot liquids or hot air. 

(D) Fleat exchangers to utilize hot liquids or hot air to heat air or water. 

Components of a solar system that function as a part of a conventional or backup heating, air 
conditioning, or domestic hot water system wUl not qualify for the credit. 
(2) A passive solar energy system is an assembly of structural and non-structural components which 
is designed to provide a net energy sa^■ings to a buUding from solar energy, using non-mechanical 
means of moving heat from the collection area to thennal storage. All qualifying equipment 
and materials must be integral parts of a system designed to collect, convert, transport or control 
energ>' deri\ed directly from sunlight. To qualify as a passive solar energ%' system, the following 
elements must be present: 

(A) solar collection surface; 

(B) thermal storage; and 

(C| control and distribution elements. 

These three elements must be designed to work together as a whole, hems which only inci- 
dentally provide passive solar benefits are not eligible. For example, south-facing glass is only 
eligible if part of a complete system with thermal storage and control and distribution elements. 
The only exception to the passi\e solar system criteria (requiring all three elements) is a 
thermosiphoning collector, which may be used without thermal storage. Thermosiphoning 
collectors, sometimes known as dayheaters, qualify for the tax credit. Eligibility requirements 
are established below according to subsystem type and individual component type. Compo- 
nents which sen."e a dual function in a building are not fuUy eligible for the tax credit, 
(ij Solar Collection Surfaces. .All solar collection surfaces must be oriented to within 30 degrees 
of true south for new construction and within 45 degrees of true south for retrofits. Solar 
collection surfaces must be no more than 25 percent shaded on December 21 between 1 1 a.m. 
and 2 p.m. (December 21 is the day when the sun is at the lowest angle in the sky). Solar 
collection surfaces must be designed so as not to cause additional heat gain to the conditioned 
area of the building in the summer. Solar collection surfaces include: 

(I) South-facing windows. These must be double-glazed or equipped with moveable insu- 
lation having an insulating value of at least R-3 to prevent nighttime heat loss. They must 
also be shaded to pre\'ent direct sunlight from entering the conditioned area at noon on 
June 21 (June 21 is the day when the sun is at the highest angle in the sky). The percentage 
of south-facing windows eligible for the solar tax credit is based on the formula X - "\' = 
Z where: 
X = total area of south-facing windows 

total area of south-facing wall 
\' = total area of north, east, and \\c5t-facing windows 

total area of north, east, and west-facing walls 
Z = percentage of windows considered passive solar equipment. 
Muhiply Z times the cost for the south-facing windows. 
(IIj .Attached solar greenhouses and other "sunspaces". These must be double-glazed or 
equipped with moveable insulation ha\ing an insulating value of at least R-3. They must 
also ha\'e a means of distributing solar heat into the conditioned area of the adjacent 
building. Doors will not qualify as a distribution method. The greenhouse or "sunspace" 
must have a specifically designed distribution method to facilitate or enhance the convective 
flow. Greenhouses or other sunspaces which do not pro\ide solar heat to an adjacent 
building or which require heat from non-solar sources to maintain inside temperatures for 
any reason are not ehgible for the tax credit. 50 percent of the cost of glazing, accompa- 
nying structural components including foundation, framing, siding, insulation, and rooting 
materials is eligible for the credit. Thermal storage elements and control and distribution 
elements are eligible according to the formulas listed for those categories. For prefabricated 
sunspaces in which component costs are not prosided, multiply 50 percent times the cost 
of the sunspace. 
(Ill) frombe wall or water-wall glazing. 100 percent of the cost of glazing and framing 
mounted no more than two feet in front of a thermal storage wall is eligible for the tax 
credit. pro\ided that its sole function is for the collection of solar energ\'. 
(IVj Skyliglits. 100 percent of the cost of skylights located on a south-facing roof and 
equipped with nighttune insulation having a minimum R-\alue of 3 is eligible for the tax 



572 5:5 \ORTH CAROLL\A REGISTER June L 1990 



FINAL RULES 



credit. Skylights on non-south-facing roofs or not equipped with nighttime insulation are 
not eUgible for the tax credit. 
(V) Thermosiphoning collectors. 100 percent of the cost of solar collectors that operate on 
thermosiphoning principles and that serve no other function besides solar collection are el- 
igible for the tax credit. These include solar window box heaters, thermosiphoning air 
panels, "breadbox" solar water heaters, etc. 
(ii) Thermal Storage Filements. Devices or materials specifically designed for the storage of solar 
energy are eligible for the solar tax credit. These materials must be located within the insu- 
lated shell of the buUding or enclosed by fixed or moveable insulation or double-glazing. 
Masonry products used as thermal storage in walls or floors must be a minimum of three 
inches thick. Floors used as thermal storage must be insulated around the perimeter to a 
depth of two and one-half feet below grade or under the floor with a material approved for 
underground installation and having an insulating value of at least R-10. Materials which are 
not specifically designed for thermal storage such as hot tubs, swimming pools, chimneys, 
single layer gypsum board, wood panelling and flooring, linoleum tile, masonry walls and 
floors not exposed to direct sunlight during the heating season, and floors covered with car- 
peting arc not eligible for the tax credit. 

(I) Non-load-bearing thermal storage elements. 100 percent of the cost of non-load-bcaring 
thermal storage elements is eligible for the tax credit. This includes items such as containers 
filled with water, rock, or phase change materials, rock beds, and free-standing walls of 
brick, concrete or solid block. 

(II) Load-bearing thermal storage components. 50 percent of the cost of load-bcanng ther- 
mal storage components is eligible for the tax credit. This includes walls and floors of brick, 
concrete, or solid brick. 

(iii) Control and Distribution FIcments. Devices that are specifically designed to control heat 
loss or heat gain or to distribute heat from a passive solar energy system are eligible for the 
25 percent solar tax credit. These include: 

(I) .Moveable insulation. 100 percent of the cost of mo\'cablc insulation dc\ices arc eligible 
for the tax credit provided they have an R-value of at least three and seal tiglitly agaijist the 
window frame. Standard draperies and curtains do not qualify. 

(II) Shading devices. 100 percent of the cost of devices used to shade solar collection suriaccs 
is eligible for the lax credit, provided that these de\'ices shade no portion of the collection 
surface on December 21. Adjustable or rcmoveabic awnings, solar screens, and solar films, 
and lattice work used to support \ines are examples of shading devices. Trees, shmbbery, 
and other vegetation are not eligible, nor are interior shading devices such as shades or 
blinds. 

(III) Ducts, fans, vents, backflow preventers, etc. 100 percent of the cost of these items is 
eligible for the tax credit if designed exclusi\'ely as part of the solar energy distribution (not 
collection) system. Ceiling fans, attic fans, and free standing fans are not eligible for the tax 
credit. 

(IV) Controls. 100 percent of the cost of theiTnostatic controls or other controls, sensors and 
equipment, is eligible for the tax credit when designed as part of the solar system. 

Uistorv \ote: Statiiton' Authoritv G.S. 105-151. 2: 105-163.03: 105-262: 
Eff. .lime I. /OS 2: ' 
Amended Eff. .lunc I. 1900: July I. I0S6: May I. I0S4. 

.0606 ckkdh iok child and Di:rK\nKNT c.ark kx^hnsks 

(a) A tax credit is allowable for the employment-related expenses for child and dependent care. The 
credit is calculated on the net qualified Federal employment-related expenses at~ter reduction for any 
employer-paid dependent care assistance that is excluded from Federal gross income. For dependents 
who were seven years old or older and not physically or mentally incapable of caring for themsehes, 
the credit is seven percent of the net qualified Federal employment-related expenses. 

(b) For dependents who were under the age of seven and dependents who were physically or mentally 
incapable of caring for themselves, the credit is ten percent of the net qualified Federal employment- 
related expenses. An indi\'idual who is not able to dress, clean, or feed himself because of a physical 
or mental condition is not able to care for himself Indi\iduals with mental conditions who require 
constant attention to prevent them from injuring themselves or others are considered to be unable to 
care for themseh'cs. 



5:5 NORTH CAROLINA REGISTER June I, 1990 575 



FINAL RULES 



(c) For a dependent who becomes age seven during the taxable year and who is not physically or 
mentally incapable of caring for himself, the tax credit for employment-related expenses incurred prior 
to the dependent's seventh birthday will be calculated at the ten percent rate, and the tax credit for 
employment-related expenses incurred after the dependent becomes age seven will be calculated at the 
seven percent rate. 

(d) if an individual was a resident of North Carolina and his spouse was a nonresident, he may not 
claim credit for any employment-related expenses paid by his spouse. An individual who was a non- 
resident during any part of the tax year, must reduce the employment-related expenses by the amount 
he paid during the period he was a nonresident. 

Ilistotj Sote: Statuton- Authnritv G.S. 105-151.11; 105-262; 
Eff. June I. 1990. 

.0607 CRKDIT FOR INCOMK T.W F'AID TO ANOTHER STATE OR COUNTRY 

A tax credit is allowed to an indi\idual who is a resident of North Carolina for tax imposed by and 
paid to another state or countr>- on income that is also taxed by North Carolina, subject to the fol- 
lowing conditions: 

(1) The income must ha\c been derived from sources in the other state or countr>' and must have 
been taxed under the laws of that state or country, regardless of the legal residence of the taxpayer. 

(2) The credit allowable is the smaller of either the tax paid the other state or countr\' on income also 
taxed by North Carolina or the product obtained by multiplying the North Carolina tax computed 
before credit by a fraction in which the numerator is the part of the North Carolina income, as 
adjusted, which is taxed in the other state or country" and the denominator is the total income as 
adjusted, received while a resident of North Carolina. If credits are claimed for taxes paid to more 
than one state or countn,', a separate computation must be made for each state or countr>' and the 
separate credits combined to determine the total credit. 

(3) Receipt or other proof showing payment of income tax to the other state or countr\ and a true 
cop\ of the return tiled with the other state or country must be submitted u ith the North Carolina 
return. No credit is allowed for income taxes paid to a city, county, or other political subdi\ision 
of a state or to the Federal government. 

If any tax for which a resident has claimed a tax credit on his North Carolina income tax return 
is refunded at any time by the other state or country, a tax equal to that portion of the credit al- 
lowed for the taxes credited or refunded must be paid to North Carolina. 

Histon- \ote: Siatuton' Authoriiv G.S. 105-151 : 105-262: 
Eff. ./line I, 1990. ' 

.0608 CRKDIT KOR CORPORATE TAX PAIO \i\ S CORF'ORATION TO ANOIIIER STATE 

(a) Credit is allowed to a resident shareholder for his share of the coqiorate lax paid by an S corpo- 
ration to another state that taxes the corporation rather than the shareholder on the S corporation's 
income, or the computed credit, \\hiche\er is less. 

(b) If credit is claimed for the shareholder's part of the corporate tax paid, a schedule must be attached 
to the North Carolina return showing the total tax paid by the .S corporation and how the pro rata share 
of the tax was determined. 

(c) This credit is also allowed to resident shareholders with respect to the corporate income tax paid 
to North Carolina by an S corporation for a fiscal year ending in the calendar }ear 19S9. 

Uiston Sote: Statutoiy Authoriiy G.S. 105-151. S: 105-262; 
EJf June I. 1990. ' 

.0609 CREDEI FOR NOR 11 1 CAROLINA DIMDENDS 

(a) .V tax credit is allowed to a taxpa\er tor di\idends recei\ed from a corjioration which allocates 
50 percent or more of its income or loss for the >ear to North Carolina. The credit is six percent of 
the amount of dividends recehed by the taxpayer while a resident of North Carolina and ma\ not ex- 
ceed the tax liability for the tax year reduced by all other tax credits. 

(b) The maximum credit is three hundred dollars ($300.00) per taxpayer; howe\er, if a joint return 
is tiled the three hundred dollars ($300.00) maximum credit applies separately to each spouse for a total 
potential credit of six hundred dollars ($600.00). Dividends from stock owned jointly must be allocated 



r4 5:5 NORTH CAROLINA REGISTER June 1, 1990 



FINAL RULES 



50 percent to each spouse. Dividends from stock owned by only one spouse must be allocated entirely 
to that spouse. 

(c) The tax credit is not allowed for dividends received from a corporation which elected to be taxed 
as an S corporation under the Internal Revenue Code except for dividends attributable to a taxable 
period during which the corporation operated as a C corporation. 

History Note: Statutory Authority G.S. 105-151.19: 105-262; 
Eff. June I, 1990. 

SFXTION .0700 - ACTIVE AND RKSERVE DLTY MILITARY PAY 

.0701 MILITARY PAY IN GENERAL 

.0702 RESIDENT ARMED SEKMCES PERSONNEL 

.0703 NONRESIDENT ARMED SERMCES PERSONNEL 

.0704 ESTIMATED INCOME TAX RETURNS 

.0705 SERVICE INCOME AND DEDUCTIONS 

.0706 EXTENSIONS 

History Note: Statulorj^ .Authority G.S. 105-134: 105-135(13); 105-141; 105-141 (b 1(25); 105-147; 
105-163.15; 105-163.18; 105-262; 105-263; 50 U.S.C. Sec. 574; 
Eff. Febr-uary 1, 1976; 

Amended Eff Aui^ust 1, 1986; Mav 1, 1984; June 1, 1982; March 22, 1981; 
Repealed EJf. June 1, 1990. 

SECTION .0800 - INSTALLMENT SALES 
.0801 GENERAL 

History Note: Statutory Authority G.S. 105-141 (a): 105-142(f); 105-144; 105-262; 
Eff Febnuuy 1, 1976; 

Amended Eff. February 1. 1988; May 1. 1984: June 1, 1982; 
Repealed Eff. June 1, 1990. 

SECTION .0900 - SALE OE PRINCIPAL RESIDENCE 

.0901 GENERAL 

.0902 RULES 

.0903 DEKINniONS 

.0904 PARIIALLV USED AS A RESIDENCE 

.0905 CON\ERTED TO REN FAL PROPERTY 

.0906 EXCHANGE 

.0907 ALLOCAIION UETWEEN HUSBAND AND WIFE 

.0908 ACQUIRED in GIFT OR INHERITANCE 

History Note: Statutory Authority G.S. 105-144.2; 105-262: 
EJf February 1, 19^6: 

Amended Eff Febriiary 1. 1988; August 1, 1986; May 1, 1984; March 21, 1981; 
Repealed Eff June 1, 1990. 

.0910 REPORTING SALE 

History Note: Statutory Authority G.S. 105-144.2; 105-262; 
Eff Febr-uary I, 1976: 

Amended Eff June I. 1982; March 29, 1981: February 21, 1979: 
Repealed Eff June 1, 1990. 

.0911 55 0RO\ER 

History .\ote: Statutory Authority G.S. 105-141 ( b)f 26 1; 105-262: 
Eff Mar'ch 29, 1981: 
Amended Eff May 1. 1984; 



5:5 NORTH CAROLINA REGISTER June I, 1990 375 



FINAL RULES 



Repealed Eff. June I. 1990. 

SECTION .1000 - FRIVATIi ANNUITY TRANSACTIONS 

.1001 GENKKAL 

History Note: Statutorv Authority G.S. 105-141 (a): 105-144: 105-262; 
Eff. Eehnmr\' I. 1976: 
.■{mended Eff .lune I, 1982: 
Repealed Eff June I. 1990. 

secnon .1100 - invoiuniary con\ ersion 
.1101 (;eneral 

lli.storv Note: Statutor\' .tuthoritv G.S. 105-144.1: 105-262: 
Eff February I. 1976: 
.■Imended Eff April I. 197S: 
Repealed Eff .lune I. 1990. 

SEC HON .1200 - COST BASIS OE PROPERTY 

.1201 GENERAL 

.1202 CHANGES IN HIE BASIS 

.1203 COS! BASIS GLIDE (HART 

lliston' Note: Statutorv Authority G.S. 105-144: 105-262: 
Eff. February I. 1976: 
Amended Eff .March 25. 1978: 
Repealed Eff. .lune I. 1990. 

SECIION .1.^00 - lENANCY BY THE ENIIREI^ 

.\M)\ GENERAL 
.1302 HOW ( REAIED 
.1303 INCOME 

.1.104 (;ain or loss 

.1.105 BASIS TO SLRMNOR 

lliston.' Note: Statutorv Authority G.S. 39-13.6: 39-l3.6(c}: 105-144: 105-262: 
Eff Eebniary I, 1976: 

Amended Eff .Mav I, 1984: June I, 1982: February 18, 1978: 
Repealed Eff. June I. 1990. 

.1306 BASIS ALTER DIVORCE 

History Note: Stalutoiy Authoritv G.S. 105-262: 
Eff February IS, 1978; 
Repealed Eff June I. 1990. 

SECnON .1400 - INCOME AND DEDLCIIONS OE DECEDEN IS 

.1401 GENERAL 

.1402 HIE REl'ORTIN(; OE INC OME 

.1403 DEDLC riONS 

.1404 REH NDS 

llistoty Note: Statutory Authoritv G.S. 2SA-15-8: 28A-15-9: 31A-4: 105-142: 105-142.1; 
105-152: 105-262;' 
Eff Fcbmaiy I, 19^6: 

Amended Elf August I. 1986: June I. 1982; February 21. 1979; 
Repealed Eff June I, 1990. 



376 5:5 NORTH CAROLLNA REGISTER June 1.1990 



FINAL RULES 



SFXTION .1500 - STOCK DIVIDENDS AND STOCK RIGHTS 
.1501 GENERAL 

History Sole: Statutory Authority G.S. 105-141 (a); 105-262; 
Eff. Febniarv I, 1976; 
Amended Eff. June I, I9S2; 
Repealed Eff. June I, 1990. 

SECTION .1600 - BASIS OF DIVESTED STOCK 

.1601 GENERAL 

.1602 ALLOCATION OF BASIS 

Historv \ote: Statutoty Authority G.S. 105-144.4; 105-262; 
Eff Fehmarv I. 1976; 
Repealed Eff June I, 1990. 

SECTION .1700 - EXEMPT INCOME 

.1701 GENERAL 

.1702 LIFE INSL RANGE PROCEEDS 

.170.? REILKN OF I'HLMILMS 

.1704 (.IF IS 

.1705 INIIERIIANCE 

.1706 (;0\FRNMFNI OBIIGA1IONS 

Histoty Sate: Statuton Authority G.S. 105-141: I05-I4l(al: 105-14! ( b X /): 105-141 {b)( 2); 
105-141 (b)(3): 105-/4/ (b)(4): /05-/44: /05-262; 
Eff. Februar\' /. /976: 

Amended EJf Eebniary /. /9S9: August /. /9.\6: June /. /9S2: March 29. /9S/; 
Repealed EJf. June /, /990. 

.I70S ACCIDEN r OR HEALTH INSLRANCE 
.1709 MEDICAL BENEFIIS 

ilistoty Xote: Statutory Authority G.S. / 05-/4/ {a): /05-/4/ { b )( 5 ): / 05-262: 
Eff Eebniaiy /. /9''6: 
Amended Eff. .May /. /9S4: 
Repealed EJf June /. /990. 

.1715 REIIREMFNT BENEFITS FROM Ol HER S lA lES 
.1716 MEALS AND lOIKWNG 

History .\'ote: Statutory Authority G.S. /05-/4/(a}: /05-/4/ (b)(S I: /05-/4/ ( b )( 9 )a.: /05-262: 
EJf I'eb'ruaiy /. /9"6: 

Amended Eff April /9. /'«/; March 29, /9S/: Februatr /S. /97S: 
Repealed Eff June /. /9<M). 

.1728 TAX SHFLTERFD ANNLI IIES 

Histon' \ole: Stalutoty Authority G.S. /05-/4/ 1 b)i /7): /05-262: 
EJf Eebniar\> /. /9^6: 

Amended Eff April /9. /9.S/: I'cbniaty /S, /97S; 
Repealed /:lf. June /. /990. 

.17.^0 DEDLCIIBIE DIMDENDS 
.17.^1 RELOCAIION EXPENSE 

History Note: Statutoiy Authority G.S. /05-/4/(a): /05-/42(el: /05-/44: /05-/47(7): 



5:5 NORTH CAROLINA REGISTER June L 1990 377 



FINAL RULES 



105-262: 133-15; 

Eff. February I. 19-6: 

Amended Eff. June I, I9S2: April 19. I9SI; 

Repealed Eff. June I. 1990. 

.1733 ^()R^II { AROI.rNA LOCAL GON LKNMKNT 
.1734 RAIL[«)AI) KKLIKKMENT 

Uiston- Sole: Statutoty Authority G.S. 105-141 (a): 105-262: 128-31: 45 L'.S.C. Sec. 231m: 
Eff. February I. 19^6: 
Amended Eff. June I. 1982: 
Repealed Eff. June /, 1990. 

.1737 NLIKKANS ADMINLS LKAFION BLNKFLLS 
.I73.S DLSAHILLL'S INCOME 

niuon- Xote: Statutory Authoritv G.S. 105-/41: 105-262: 38 L'.S.C. sec. 3101: 
Eff Febmary I. 19^6: 
Amended Eff June I. 1982: 
Repealed Eff June I. 1990. 

.1740 STATE EM^•LO^ EES' KETIHFMENT 

Ilistoty Xote: Statutory Authority G.S. 135-9: 105-262: 
Eff Febniary /, 19-6: 

Amended Eff May J. 1984: Februan- 18, 1918: 
Repealed Eff June L 1990. 

.1742 CAMI'AI(;N C ()MKII?l LIONS 
.1743 TKAININ(; ALLOW AN(ES 
.1744 HKOIIILKIIOOD RELIEF 

l/iuoty Xote: Statutory .iuthority G.S. 105-141 (al: 105- 141 (b}(3 ): 105-262: 
Eff February I. 1976: 
Repealed Eff. June /. 1990. 

.1747 INDIAN RESLR\VIION INCOME 

History Xote: Statutory .Authority United States Court of .Appeals (Fourth Circuit > Xo. 79-1589: 
G.S. 105-141: 105-262: 
Eff June I, 1982: 
Repealed Eff June 1. 1990. 

.1748 NORIII ( AROIINA lECISI.AIINE REI IREMEN I BENEFITS 

llistoiy Xote: Statulmy Authority G.S. 120-4.4: 120-4.23: 105-262: 
Eff May I, 1984; ' 
Amended Eff. August I, 1986; 
Repealed Eff. June 1. 1990. 

.1749 I'l NIII\E DAMAt.ES 

.1750 I OSIER I'AREN IS RLIMIU RSEMEN F 

.1751 ( lllll) AND DEI'ENDENF ASSISIANC E I'\1D in EMIM ONER 

.1752 F()REIc;n in{ ome e\( lesion 

Hislon' .\'otc: Statutory Authority G.S. 105-141 (a): 105-141ibl5: 105-141i bn 9 !c.; 
105-141{bj(22): 105-262: 
Ejf August 1. 1986: 
Amended Eff. Xovember 1. 1988; 
Repealed Eff June 1. 1990. 



37S 5:5 NORTH CAROLINA REGISTER June 1,1991) 



FINAL RULES 



SECTION .1800 -SCHOLARSHIP AND FELLOWSHIP GRANTS 
.1802 FEDERAL PRACTICE TO BE FOLLOWED 



History Note: Statutorv Authorily G.S. 105-141 (b)( 10); 105-262; 
Eff. February I, 1976; 
Repealed Eff. June I, 1990. 

SECTION .1900 - EMPLOYEE DEATH BENEFITS 

.1901 GENERAL 

.1902 THE FI\ E THOLSAND DOLLAR EXCLUSION 

.1903 NONFORFEITABLE RIGHTS 

History Note: Statutorv .Authority G.S. 105-14! (a)( 16); 105-141.1; I05-I4I (b)( II ); 105-262; 
Eff. February I, 1976; 

Amended Eff. August I. 1986; June I, 1982: February 18. 1978; 
Repealed Eff June I, 1990. 

SECTION .2000 - DEPRECIATION AND DEPLETION 

.2003 STATE AND FEDERAL DIFFERENCES 
.2004 FEDERAL PRACTICE TO BE FOLLOWED 

History Note: Statutory Aut/writv G.S. 105-147(12); 105-262; 
Eff. Febmarv I, 1976; 
Amended Eff May I, 1984: June I, 1982; 
Repealed Eff. June I. 1990. 

SECTION .2100 - CONSERN ATION AND LAND CLEARING 

.2102 FEDERAL PRACTICE TO BE FOLLOWED 

History Note: Statutory Authority G.S. 105-147(1); 105-262; 
Eff Febmarv I, 1976; 
Repealed Eff June I, 1990. 

SECTION .2200 - TRA\ EL EXPENSES 
.2201 GENERAL 

History Note: Statutory Authority G.S. 105-147(1); 105-147(2); 105-262; 
Eff. February I, 1976; 
Amended Eff February I. 1989; 
Repealed Eff June I, 'l990. 

.2203 FEDERAL PRACTICE TO BE FOLLOWED 

Hi.Uory Note: Statutory Aut/writv G.S. 105-147(1): 105-147(2); 105-262; 
Eff Febr-uaiy I, 1976; 

Amended Eff February I, 1988; June I, 1982; 
Repealed Eff June I. 1990. 

.2204 REIMBLRSEMENT FOR MEALS 

History Note: Statutory Aut/writv G.S. 105-147(1); 105-262; 
Eff March 29, 1 98 1: 
Repealed Eff June I. 1990. 

SECTION .2300 - EDLCATION EXPENSES 



5:5 NORTH CAROLINA REGISTER June L 1990 379 



FINAL RULES 



.2M)\ GKNKKAL 

.IMV. I KDKRAL 1'KACHCK \0 UK FOLLOWED 

History Sote: Statutory Authority G.S. 105-147(2); 105-/47(3); 105-148(1); 105-262; 
Eff. rebrumy I. 1976; 
Amended Eff. February I. 1 988; 
Repealed Eff. June /, 'l990. 

.2303 KMIM ()^tR'S KDl CAIIONAL ASSISTANCE 

ffistoty .\oie: Statutoiy Authority G.S. 105-141 (b)(23}; 105-262; 
Eff Mat'ch 29. 1981; 
Repealed Eff .lune I. 1990. 

SKC HON .2400 - MO\ INC; K.XI'KNSES 

.2401 GKMKAL 

.2402 I KDKK \L I'RAC I K K TO HK KOI LOW 11) 

lli.uoty Sote: Statutoiy Authority G.S. 105-141 (a)( 2h; 105-147(8); 105-262; 
Eff Febniaiy I. 1976; 

Amended Eff Febniaiy I. 1988; March II. 1978; 
Repealed Eff June I. 1990. 

.2403 MKMI5KRS OK 1 1 IK ARMKO KORCKS 

Uistoty Sole: Statutoiy Authority G.S. 105- 141 (a)(2l ); l05-l47(Sl; 105-262; 
Eff March II, 1978; 
Repealed Eff June I, 1990. 

.2404 KORKKA MONKS 

History Sote: Statutoiy Authority G.S. 105- 141 {a){21 ); I05-J47i8); 105-262; 
Eff May /, 1984; 
Repealed Eff June /. 1990. 

SKCIION .2500 - RKI IRKMKM I'l ANS 

.2502 KKDKRAI PR ACriCK lO UK KOI LOW KO 

llistoiy Sote: Statutoiy Authority G.S. I05-14''( 20); 105-262; 
Eff Eehruaiy I, 19-6; 

Amended Eff. Febniaiy I. 1988; August I. 1986: May I. 1984; June I. 1982; 
Repealed Eff June I. '/990. 

.2504 KKDKRAI. PRACTICK TO HK KOI LOW KD 



Uistoty Sole: Statutoiy Authority G.S. l05-l4-(20l; 105-262; 
Eff February I. 1976; 
Amended Eff May I. 1984; June I. 1982; 
Repealed Eff. June I. 1990. 

SKCIION ,2600 - ( ARR\-0\ KR KOSS 

.2f>01 (;knkrai. 

Uistoty Sole: Statutoiy .iuthority G.S. 105-/47(9 id.; /05-262; 
Eff Febniaiy /. ErO; 
Amended Eff. June I. 1982; 
Repealed Eff June /. /990. 



.^SO 5:5 NORTH CAROLINA REGISTER June f 1990 



FINAL RULES 



.2603 BLSFNESS-CONNFXTEn DEDUCTION 
.2604 APPORIIONMENT 



History Note: Statutory Authority G.S. 1 05- 1 47 (9 )d.; 105-262; 
Eff. February /. 1976: 

Amended EJJ. August I, I9S6; June I, 1982; 
Repealed Eff. June 1, 1990. 

SECTION .2700 - INTEREST DEDUCTION 

.2701 GENERAL 

.2702 CASH AND ACCRUAL BASIS 

.2703 BUSINESS DEDUCTION 

.2704 HUSBAND AND WIFE 

.2705 MORTGAGES 

.2706 LIFE INSURANCE LOANS 

.2707 COOPERATIN E OW^SERS 

.2708 NOTE DISCOUNT 

History Sole: Statutoty Authority G.S. 105-135(11): 105-141.3; 105-142: 105-147(5); 
I05-I47{I9); 105-262; 
Eff. Febmaty I. 1976; 

Amended Eff November I. I9S8; June I, I9S2; 
Repealed Eff. June I, 1990. 

.2711 REVOLMNG CHARGE ACCOUNTS 
.2712 OTHER INTEREST PAYMENTS 
.2713 RETIREMENT SYSTEMS 

History Note: Statutory Authority G.S. 1 05-147 (5 J; 105-262; 
Eff February I. 1976; 
Repealed Eff June I, 1990. 

SECTION .2800 - TAXES PAID 

.2801 GENERAL 

.2802 CASH AND ACCRUAL BASIS 

.2803 WHO MAY CLAIM HIE DEDLCTION 

.2804 BUSINESS DEDUdlON 

.2805 DEDl CIIBLE BY RESIDENTS 

.2806 NONDEDUCIIBLE 

History Note: Statutory Authority G.S. 105-135(11 ); 105-141.3; 105-147(6); 105-147(19): 105-262: 
Eff February I. 1976; 

Amended Eff November I, I9SS: February I. 19SS; .4ui:ust I, 1986: April 5. 198 1; 
Repealed Eff. June I, 1990. 

SECTION .2900 - CASUALTY AND IlIEFT LOSSES 

.2901 GENERAL 

History Note: Statutory Authority G.S. 105-147(9 )a.: 105-I47(9)b.; 105-262; 
Eff Febntary I, 1976; 

Amended Eff February /, 1988; May I. 1984; June I. 1982; 
Repealed Eff June /, 7990. 

SECTION .3000 - CONTRIBUTIONS 

..1001 GENERAL 

.3002 QUALIFIED ORGANIZATIONS 

..1003 GR.^TUITOUS SERVICE EXPENSES 



5:5 NORTH CAROLIN.i REGISTER June I, 1990 3SI 



rrXAL RULES 



..1004 WIIKN DKDl ( rilJIK 

.1005 IIMIIMIONS 

..1(»06 AMOl M IHIM (IIHI E 

.1007 NONOKDl ( riBLK COMRIIU TIONS 

.1008 I'ARrNKRSIIII' COM RIHI IIONS 

llisiorv Sote: Suiidon- Authority G.S. 105-147(15): I05-I47( 1 5a): 105-147(16): 
105-163. 16(e): 105-262: 
Eff. February /. 1916: 

Amended Eff. Xovember I, 19SS: August I. I9H6: Mav I, I9S4: June I. I9S2: 
Repealed Eff. June I. 1990. 

secnon .1100 - medical expenses 

..1101 (;eneral 
.1102 deeimiions 
..1103 iimiiaiions 

..1104 III SliAM) AM) WIEE 

.1105 DEI'ENDEMS 

..1106 El NERAl, EXPENSES 

.1107 COMMON DEDECriBl.E EXPENSES 

..1108 SPE( lAE CASES 

.1109 NONDEDl ( riBEE EXPENSES 

..M 10 MEDICAL C ARE EOR .\ DECEDENT 

..M 1 I REIMin RSEMENl 

Histor,- .\ote: SlatutofT Authority G.S. 105-142. 1: 105-14^ {} I ): 105-262: 
Eff Febmary I, 19''6: 

Amended Eff Mav I. 1984: June 1. 1982: April 12. 1981: March II. 19^8: 
Repealed Eff. June I. 1990. 

SECriON .3200 - PENALTIES: INDIMDIAL INCOME TAX 

.3203 PENAL LIES EOR EAII LRE TO FILE AND PAY 

(a) Under the provisions of G.S. 105-236 both the failure to file and failure to pay penalties, if due. 
can be applied for the same month. If a return is filed late without fjayment of the tax shown due. both 
the late filing and late pavment penalties will be assessed at the same time as shown in the table in this 
Rule: 

Cause Penalty 

( 1 ) Return filed by due date showing tax 
due of $1.00 or more— No tax paid by 

due date 10°o failure to pa\ (minimum $5.00). 

(2) Return filed late showing tax due of 

$1.00 or more--No tax paid with return 5"o per month failure to file ($5.00 min. 

— 25°o max.) and 10"o failure to pay-- 

($5.00 min.). 

(3) Return filed late showing tax due of 

$1.00 or more paid with retum 5"n per mouth failure to file ($5.(K) min. 

— 25''o max.) and ID",., failure to pav 

($5.00 mm.). 

(4) Retum filed late showing no tax due or 
tax due of less than $I.00--Tax due after 

examination *5"'u per month failure to file ($5.00 min. 

-25^0 max.). 

(5) Retum filed by due date showing no tax 
due or tax due of less than $1.00— Tax due 

after examination *No penalty at time of examination. 

(6) Retum filed late showing tax due of 
$1.00 or more--'rax and failure to file 
penalty paid with retum--More tax due 

after examination ^Failure to file penalty on additional 



.?.V2 5:5 SORTH CAROLISA REGISTER June I. 1990 



FINAL RULES 



tax on same basis as was assessed on 

original return. 10% failure to pay on the 

tax shown due on the retum--($5.00 min.) 

(7) Return filed by due date showing tax due 
tax paid with return-- More tax due after 

examination *No penalty at time of examination. 

(8) Return filed late showing refund— Refund 

is made--Tax due after examination *5% per month failure to file ($5.00 min. 

—25% max.) on additional tax. 

(9) Return filed late showing refund--Rcfund 

is not made--Tax due after examination *5% per month failure to file ($5.00 min. 

--25% max.) on additional tax. 

(10) Return filed by due date showing refund 

--Refund is made--Tax due after examination *No penalty at time of examination. 

(1 1) Amended return filed showing tax due of 

$1.00 or more--no tax paid with return 10% failure to pay ($5.00 min.). 

( 12) .Amended return filed showing tax due of 

$1.00 or more--part of tax paid with return 10"o failure to pay on balance of tax due 

: ($5.00 min.). 

*A negligence or fraud penalty may also be assessed. 

(b) If the return is filed under an extension, the failure to file penalty will be assessed from the ex- 
tended filing date rather than from the original due date. Interest is due from the original due date to 
the date paid. 

(c) The failure to file penalty will not be assessed on the return of an individual residing or traveUng 
outside the United States if the return is filed on or before the 15th day of the sixth month from the 
close of the tax year (.lune 15th in the case of a calendar year taxpayer) or later if the taxpayer has a 
federal extension, a copy of which is attached to the return; or a further extension of time may be 
granted, based upon the facts, if the taxpayer completes Form D-410, "Apphcation for Extension of 
Time for Fifing State Income Tax Returns". 

Hishny Sote: Slatutorv Autlwhtv G.S. /05-/52(e): 105-236: 105-262: 105-263; 
Eff. April /, I97S: 
Amended Eff. June I, 1990. 

.3205 I AII.LRK K) KKPOKl KKDKR.KL CHANCJES 

When a taxpayer fails to report federal changes within two years from the date he receives the federal 
revenue agent's report or other final determination of corrected net income, he is subject to the failure 
to file and failure to pay penalties and forfeits his right to any refund as the result of the federal changes. 
Ihe failure to file and failure to pa) penalties begin at the expiration of the two-year period. 

History Sote: Statutoty Authority G.S. 105-159: 105-236(3): 105-262: 
Eff April I. 1978: 
Amended Eff June I. 1990. 

.3209 \V.\I\ KR Ol- I'KNALTY 

Any penalty can be wai\ed by the Secretary of Re\enue except the penalty for unpaid checks. Any 
request for waiver or reduction of penalty should be made in writing explaining the reasons for re- 
questing the waiver. Interest however will not be waived under any circumstances. 

HiUory Sote: Stalulori' Authoritv G.S. 105-163.15; 105-237; 105-262; 
Eff April I. 1978;' 
A/nended Eff June I. 1990. 

SKCriON ..VM)0- ACCOIMINC; PKRIOnS AND MKiiions 

.3301 GENERAL 

.3302 .VCCOLNTING METHODS 

.3303 .VCCOl NTING PERIODS 

.3.^04 ( IIANGE IN INCOME ^ EAR 

.3305 ANNUALIZING INCOME 



5:5 NORTH CAROLINA RECLSTER June I. 1990 5,S3 



FINAL RULES 



Ilistoiy Sntc: Statutoiy Authoritv G.S. 105-135(5); /05-/42(a); I05-I42(b): 105-262; 
Eff. February I, 1976; 

Amended Eff. February I, I9S8; June I. 1982; April 12, 1981; 
Repealed Eff June I. 1990. 

SKCriON ..^400 -SI AIL TE Ol LIMITATIONS AND FEDERAL CHANGES 

.3406 KEKLNDS 

(a) G.S. 105-266 authorizes refunds to taxpayers for overpayment of taxes of three dollars ($.V00) or 
more with interest beginning 90 days after the tax was paid. A refund of less than three dollars ($3.00) 
will not be made unless a written request is received from the taxpayer. I'he section also pro\ides a 
time limit for refunds by specifying that "... no overpayment shall be refunded irrespecti\e of whether 
upon discoveiy or receipt of written demand if such discovery is not made or such demand is not re- 
ceived within three years from the date set by the statute for the filing of the return or within six months 
of the payment of the tax ;dleged to be an overpayment whichever date is the later." If the taxpayer 
has been granted an extension of time for filing the return, the three year period referred io in G.S. 
105-266 is three years from the extended date. 

(b) Cj.S. 105-163.16 provides for the refunding of overpayments amounting to one dollar ($1.00) or 
more which result from the withholding of income taxes from wages at the source or from payments 
made on declarations of estimated tax. An o\erpayment of less than one dollar ($1.00) will not be 
refunded except upon receipt of a written demand from the taxpa\er. Interest on these o\'erpa\ ments 
will be computed from a date six months from tlie time the return is filed or is due to be filed, \vhiche\er 
is later. The time limit for claiming refunds is three years from the due date or six months after pay- 
ment uhiche\er is later, except in the case of federal changes as explained in .3403 of this Section. 

(c) The law requires the interest rate to be determined on or before June I for the follow ing six-month 
period beginning on Jul_\' 1 and on or before December 1 for the folknving six-month period beginning 
on .lanuar)- 1. The current rate of interest may be obtained by contacting the Department of Re\enue. 

(d) For refunds barred by the three-year statute of limitations, C}.S. 105-267.1 presides for the re- 
funding of taxes w hich through clerical error, or misinterpretation of the law, or otherw ise ha\e been 
paid in excess of the amount legally due; provided, the demand for such refund is made within two years 
from the time of the payment. This two-year statute of limitations does not apply in cases where the 
tax is due and payable to another state. Any refimd made under this statute must be certified by the 
Director of the Indi\idual Income Tax Division, approxed b\' the .\ttomey General, and will not in- 
clude any interest. 

nislon Note: Slatuloty Aulhohlv G.S. 105-/6.116; 105-241.1; 105-262: 105-266; 
Eff Febniarv I. 19^6; 
Amended Eff June 1. 1990; Au:^usl 1. 1986; May I, 1984; December 17, 1978. 

SK( HON .3500 - PAKINERSIIIl'S 

.3501 CKNEKAL 

The partnerships taxable income detennined under the Internal Re\enue Code is the starting point 
for preparing the North Carolina partnership income tax returns. I'he same additions, deductions and 
transitional adjustments to Federal taxable income required for indi\ iduals apph to pailnerships. 

Histoiy \ote: Statutory Aulhoriiv G.S. 105-152(a)i3)i2j; 105-I54{b); 105-142(0; 105-262; 
Eff February 1, 1976; 
. I mended Eff June 1, 1990; December J. 1986. 

.3502 TAXING I'AUI AKRSI IIP INCOME 



Histon- \ote; Statutory Authority G.S. 105- 142(c); 105-262; 
Elf. February 1, im; 
.t mended Eff June 1. 1982; 
Repealed Eff June I. 1090. 

.3503 PARTNERSIIir RETl RNS 



3f;4 5:5 i\()RTH CAROLINA RECLSTFR June F 199U 



FINAL RULES 



(a) A North Carolina partnership return (Form D-403), must be filed by every partnership doing 
business in North Carolina if a Federal partnership return was required to be filed. For individual in- 
come tax purposes, the term "business carried on in this State" means the operation of any activity 
within North Carolina regularly, continuously, and systematically for the purpose of income or profit. 
A sporadic activity, a hobby, or an amusement diversion does not come within the definition of a 
business carried on in this State. Income from an intangible source which is received in the course of 
a business operation in this State so as to have a taxable situs here (including such income which is 
included in the distributive share of partnership income, whether distributed or not) is included Ln the 
numerator of the fraction used in determining the portion of federal taxable income that is taxable to 
North Carolina by a nonresident. The return must include the names and addresses of the individuals 
entitled to share in the net income of the partnership and must be signed by the managing partner and 
the indi\idual preparing the return. 

(b) A copy of the Federal Partnership Income Tax Return, Fonn 1065, and aU schedules, including 
each K-1 must be attached to the North Carolina partnership return. 

History Sote: Slatulon' Authoriiv G.S. I05-I42(c): 105-I52(a)(2); /05-/54(b); 105-262: 
Efj: February I. 19^6: 
Amended Eff. June I. 1990; June I, I9S2. 

..^504 AC( OlMING PKRIOH 

..^505 ACCOLMING MKHIOIXS 

.3506 n KMS EXKMPI I ROM INCOME 

.3507 lU SINESS DKDLCTIONS 

..1508 COMKIBLTIONS 

.3509 DKDL CTIRI.E DIMDENDS 

History Sote: Statutoty Authority G.S. 105-141: I05-I42(al: I05-I42(b): I05-I42{c): 
105-147(1 ){b}: 105-147(2): 105-147(7); 105-147(15); 105-14^(16); 
I05-I54(b): 105-262; 
Eff. Februan- I. 1976; 
Amended Eff February /, I9SS; 
Repealed Eff. June f 'l990. 

.3511 NONDEDLCTIBLE ITEMS 
.3512 OL T-OF-STME INCOME 

Histoiy Sote: Statutor\' Authority G.S. 105-136; 105-140; 105-141 [a); /05-J42(c); 105-151: 
I05-I54{bj: 105-262; 
Eff Februaiy I. 1976: 
Repealed EJf June I. 1990. 

.3513 NONRESIDENT PARTNERS 

(a) When an established business in North Carolina is owned by a partnership ha\ing one or more 
nonresident members, the managing partner is responsible for reporting the distribution share of the 
income of each nonresident partner and is required to compute and pay the tax due for each nonresi- 
dent partner. The tax rate is six percent of the nonresident partner's share of income up to twelve 
thousand se\en hundred fift\- dollars ($12,750). plus seven percent of the income o\cr twelve thousand 
seven hundred fifty dollars ($12,750). The manager is authorized by statute to withhold the tax due 
from each nonresident partner's share of the partnership net income. Payment of the tax on behalf of 
nonresident corporate partners does not relie\e the corporation from filing corporate income tax and 
franchise tax returns; howe\er. credit for the tax paid by the managing partner may be claimed on the 
corporate returns. .-Vlthough a partnership may treat guaranteed payments to a partner for ser\iccs or 
for use of capital as if they were paid to a person who is not a partner, such treatment is only for pur- 
poses of determining its gross income and deductible business expenses. For other tax purposes, such 
guaranteed payments are treated as a partner's distributive share of ordLnan' income. In detennrning 
the allowable North Carolina deductions from Federal taxable income, do not include a partners sal- 
ary", interest on a partner's capital account, partner relocation and mortgage interest differential pay- 
ments, or paxments to a retired partner regardless of whether they were detennined without regard to 
current profits. These t\pes of payments are treated as part of the partner's share of the partnership 
income. A nonresident partner is not required to file a North Carolina individual income tax return 



5:5 NORTH CAROLINA REGISTER June 1,1990 3,S5 



FINAL RULES 



when the only income from North Carolina sources is the nonresident's share of income from a part- 
nership doing business in North Carolina and the manager of the partnership has reported the income 
of the nonresident partners and paid the tax due. A nonresident partner may file an individual income 
tax return and claim credit for the tax paid by the manager of the partnership if the payment is properly 
identified on the individual income tax return. 

(b) If a partnership has one or more nonresident partners and is operating in one or more states other 
than North Carolina, the partnership's net income attributable to North Carolina for the purpose of 
determining the North Carolina income tax liability of a nonresident partner must be determined by 
multiplying the total net income of the partnership by the ratio ascertained under the provisions of G.S. 
105-130.4. This means that in the allocation of net income of a nonresident partner to North Carolina 
the applicable allocation formula prescribed for corporations is used. This allocation of income does 
not affect the reporting of partnership income by the resident partner because he is taxable on his share 
of the net income of the partnership whether or not any portion of it is attributable to another state 
or country. 

Histoiy Xote: Statutoiy Authority G.S. 105- 134.5( d ): I05-I42(c): 105-154; 105-262; 
Eff. rehniafj I. 1976; 
. [mended r.ff. June I, 1990; April 12. I9SI. 

..^514 LINll lAIION ON I.OSSKS 

.3515 BASIS OF A I'AKrNKK'S INTEREST 

.3516 I.IQl iDAIION 

.3517 I'KOI'KRI V RET.MNED 

.3518 (>AIN OR I. OSS ON DISTRIIU TION 

.3519 DlSI'OSmON OF PARFNER'S IN FERFST 

.3520 FAMIF^ FAR FNERSI HI'S 

Histon- Sote: Statutoiy Authority G.S. I05-I42(a>; I05-I42(c); I05-I44(a): 105-147(9 )a.; 
/05-I54(b>: / 05-262: 
Eff. Fcbnmn- I. I9~6; 
Amended Eff. June I. 1 98 2; 
Repealed Eff June I. 1990. 

.3521 ESI IMAFFD INCOME TAX 

No estimated income tax is required of a partnership. Indi\idual partners must pay estimated income 
tax on Form NC-40. 

Hi-Uon- Sote: Statutoiy Authority G.S. 105-163.1 1: 105-262; 
Eff. Febn/aiy I. 1976; 
Amended Eff June I. 1990. 

.3523 COMMON IRFST FLNDS 

.3524 IN\ESr\IFN F CFFIJS 

.3525 1ENANC\ \i\ FIIE ENTIRETY 

Histoiy Sote: Statutoiy Authority G.S. 105-I42(cj: 105-1 52(aj(3); 105-154{b); 105-262; 
Eff Februaiy I. 1976; 

Amended Eff \ovember 1. 19SS: May 1, 19,34; 
Repealed Eff June 1. 1990. 

.3526 FAX CREDITS 

Since the total di\idend income is allocated to the indi\idual partners, the partnership should furnish 
each resident partner a schedule of his share of the dividends to be used in deteimining any allowable 
tax credit to be claimed on the partner's indi\idual income tax return. 

lli.uoiy Xote: Statutoiy .tulhority G.S. 105-151.19; 105-262; 
Eff June 1. 1990. ' 

SECIION .3600 - FIFE ESTA I E AND REMAINDER IN FERFST 

.3601 GENERAF 



386 5:5 NORTH CAROLINA REGISTER June L 1990 



FINAL RULES 



.3602 DEMMTIONS 

360.1 BASIS Ol- LII E ESTATE PROPERTY 

.3604 ALLOCA HON Oh BASIS 

.3605 BASIS TO REMAINDERMAN 

.3606 BASIS rO REMAINDERMAN'S SUCCESSOR 

.3607 DEI'RECIAIION AND DEPLEHON 

.3608 CASUALTY LOSS DEDUCTION 

.3609 CAPILAL EXPENDIll RES 

.3610 SALE OE LIEE ESTA IE AND REMAINDER IN lERESTS 

.3611 TABLES 

llislofy Note: Statutory Authority G.S. 8-46: S-47; 105-144: I05-I44(a): 105-147 {9)b.: 
105- 1 47 {12): 105-148(2); 105-262: 
Eff. February I. 1976: 
Amended Eff. June I. 1982; 
Repealed Eff June I. 1990. 

SEC LION .3700 - ESTATES AND IRLSTS 

.3701 GENERAL 

All income of an estate or trust is taxed to the fiduciary' or the beneficiary. The conduit rules for taxing 
estates and trusts are applicable for North Carolina income tax purposes. L'nder the conduit rules, 
regardless of who is taxed, the income retains its same character as when received by the estate or trust. 

Ilhtoiy \ote: Statutory Aulhoritv G.S. 105-160 to 105-163: 105-262; 
Eff February I. 1976; 
Amended Eff June I. 1990. 

.3703 SIMPLE AND COMPLEX TRUSTS 

.3704 INCOME lAXABI E LO EIDLCIARIES 

.3705 oniKR INCOME 

.3706 EXEMPI INCOME 

Uistoiy Note: Statutory Authoritv G.S. 105-152: 105- 161(b): 105-161 {c) (3); 105-161 {d)( 5 }; 
/05-/6/(d)(7); 105-262; 
Eff I'ebruarv I, 1976; 
Amended Eff February' I. 1989; 
Repealed Eff June /, 'l990. 

.3708 PERSONAL EXEMPTIONS 

.3709 ORDINARN DEDIC LIONS 

.3710 DEDl ( HON LOR CHARITABLE PURPOSES 

.371 1 DIS IRIHl lAHLE NET INCOME 

.3712 DLSIRIBUnONS I () BENELIC lARIES 

.3713 BASIS OL PROPER lY 

Ilistoiy Note: Statutory Aulhoritv G.S. 105-142.1 ( e I: 105-I44(a): 105-16/ (c )( I ): 105-I(>l{d); 
/05-/6/(d)(4); 105-161 {d}(5); l05-/6l(d)(6): 105-161 (d)(7 }; 
105- 162(e); 105-262; 
Eff February' I, 1976; 

Amended Eff Februan' I. 1988; Augmt I. 1986; June 1, 1982: 
Repealed Eff June I. 'l990. 

.3714 LAX CREDITS 

(a) Estates and trusts are allowed all tax credits allowed to indi\ iiluals except for: 

(1) Tax credits for income ta.xes paid by individuals to other states or countries, 

(2) Tax credits for child and dependent care, 

(3) Tax credits for the disabled. 

(b) A fiduciar)' rec]uired to pay an income tax to North Carolina for a trust or estate for which he 
acts may claim a credit for tax imposed and paid to another state or countiy on income from sources 
within the other state or countr\' under the pro\isions of Ci.S. 105- 160. 4(a). 



5:5 NORTH CAROLIN.A REGISTER June 1,1990 387 



Fiy.iL RULES 



(c) A resident bcncficiar>' of an estate or trust, the fiduciar>' of which pays an income tax to another 
state or countr>' on distributable income reportable to North Carolina which is derived from sources 
in the other state or country' may claim a credit against his North Carolina tax for his share of tax paid 
the other state or countiA' under the provisions of G.S. 105- 160.4(e). 

(d) A schedule is pro\idcd on the fiduciary return for use in computing the tax credit allowable to the 
estate or trust. Before this schedule may be completed, however, there must be an allocation between 
the estate or trust and its beneficiaries of the tax paid and the gross income on which such tax was paid 
to the other state or country. 

(c) The fiduciary's share and each bencficiaPi 's share of the gross income on which tax has been paid 
to another state or countr\' is determined by the go\erning instrument and should be entered in the 
appropriate schedule on the fiducian" return. The fiduciary's share of the total gross income to be used 
in the tax credit computation schedule is the total gross income from Federal Form 1041. 

(f) The tax credit for North Carolina di\idcnds apportioned to the estate or trust should be entered 
on the line for "other tax credits". The credit apportionment is based on the distributions during the 
year as they relate to the distributable net income adjusted for State tax purposes unless the will or trust 
instrument creating the estate or tnist pro\ides for the distribution of the dixidends to certain benefici- 
aries. If such is the case, the tax credit would be a\ailable to the beneficiar)' to which the di\'idends 
were distributed. 

(g) If additional tax credits are claimed, a separate schedule should be attached to the fiduciary return 
showing how the credits were detennined and how the\ arc allocated between the bencficianes and the 
fiducian'. 

IlistofT \ote: Slalulon: Aulhoriiy G.S. 105-159.19: 105-160.3: 105-160.4: 105-262: 
Eff. Fcbniarv I, 19-76: 
.■{mended Eff. .lime I. 1990: .hme I. 198 2. 

.M\> INCOMK r\\ AIJI K IX) IJKNKI K I \RIES 

lliston \ote: Slatition- .luihority G.S. I05-I62iaj: 105-162(bl: 105-2h2: 
Eff. Febmarv 1. 1916: 
.Amended Eff. May 1. 1984: June /, I9S2: 
Repealed Eff June I. 1990. 

.3716 I IDl CIAR^ RKTl R\S 

(a) I he Federal taxable income of the fiduciary is the starting point for preparing a Noilh Carolina 
FiduciaPi' Return, Form D-407 and requires the same additions, deductions, and transitional adjust- 
ments to Federal taxable income as retjuired for Lndixiduals. 

(b) The fiducian responsible for administering the estate or trust is responsible for filing the tiducian 
return and paying the tax. I he fiduciars must tile an income tax return tor the estate or trust for which 
he acts it he is required to lUe a Federal fiducian. income tax return and: 

(1) the estate or trust dcri\'es income from North Carolina sources: or 

(2) the estate or tnist deri\'es any income which is for the benefit of a resident of North Carolina. 

(c) Ihe return is required to be fded on or before April 15 if on a calendar \ear basis and on or before 
the 15th day of the fourth month following the end of the fiscal _\ear if on a fiscal \ear basis. 

(d) Fiduciaries should be consistent in the use of the name and address of an estate or trust on a re- 
turn. If a different name for an estate or trust is used in any year from that used in the prior Near that 
fact should be noted on the first page of the return and the name used in the prit)r year indicated. I he 
use of numbers assigned by banks to estates and trusts are also helpful in the processing ol tnist returns 
after the_\" are filed. 

History .\ote: Staititoiy .{uthonty G.S. 105-160.5: 105-160.6: 105-262: 
Elf- FebtuMT I, 1976: 
.[mended Eff. June 1. 1990: ,[pril 12. 1981. 

.yi\l IRf ST INSIRIMENTS .VND Wll I S 

Histon Sole: Statiiiory .-Uuhohty G.S. 105-161 (e 1 1 1 1: 105-262: 
Eff FebnuvT 1. 19^6: 
Repealed Eff June I. 1990. 



3SS .\-.> .\()RTH C.lR()LIi\.4 REGISTER June 1,1990 



FINAL RULES 



.3718 P A YM KNT OF TAX 

(a) The tax rate for estates and trusts is six percent of the taxable income up to twelve thousand seven 
hundred fifty dollars ($12,750), plus seven percent of the amount over twelve thousand seven hundred 
fifty dollars '($12,750). 

(b) There is no provision in the income tax statutes to allow instaUment payment of income tax due 
on returns filed for estates or trusts. The tax due on a fiduciary return is payable in full by the due date 
of the return. 



History' Xote: Statutory Authority G.S. I05-I60.2; 105-160.7: 105-262; 
Eff. February I, 1976; 
Amended Eff. June /, 1990. 

..3721 SI'KCIAL IKLSTS 
.3722 GRAM ORS IRLSTS 

History Xote: Statutory Authority G.S. 105- 142(c); 105-152(3): I05-I54(b): 105-161 (f)( Da; 
105-163; 105-262:' 
Eff February I, 1976: 

Amended Eff Febnuvy I. I9SS: April 12. I9SI; 
Repealed Eff June I. 1990. 

.3723 ALLOC.VnON OF AD.Il SIMFNTS 

(a) The additions and deductions to Federal taxable income of an estate or trust must be apportioned 
between the estate or trust and the beneficiaries based on the distributions of income made during the 
taxable year. Unless the trust instrument or will that created the estate or trust specifically provides for 
the distribution of certain classes of income to different beneficiaries, the apportionment of additions 
and deductions to the beneficiaries is detennined on the basis that each beneficiary's share of the income 
for regular tax purposes from Schedule K-1, Federal Form 1041 relates to adjusted total income from 
Federal FoiTn 1041. If the trust instrument or will specifically pro\ides for the distribution of certain 
classes of income to ditferent beneficiaries, any addition or deduction directly attributable to a particular 
class of income must be apportioned to the beneficiary to which that class of income is distributed. 
After apportioning the additions and deductions to the beneficiaries, the balance is apportioned to the 
fiduciary. 

(b) In allocating the adjustments, for State purposes the amount of income for regular tax puiposes 
on Federal Schedule K-1 must be adjusted for distributions to the beneficiaiy which are not refiected 
in income for regular tax purposes. The adjusted total income on Federal Form 1041 must be adjusted 
to: 

(1) exclude classes of income that are not part of the distribution to the beneficiap,'; 

(2) include classes of income that are a part of the distribution to the beneficiaiy but are not included 
in adjusted total income; and 

(3) bv an\ deductiim treated differentlv for State and Federal tax purposes that adjust federal taxable 
income pursuant to G.S. 105-134.6 and G.S. 105-134.7. 

History S'ote: Statutoiy Authority G.S. 105-134.5; 105-134.6; 105-134.7; 105-160.2; 
/ 05- 160.5: 105-262; 
Eff June I. 1990. 

.3724 AI.I.OCAIION OF INCOME A r IRIIUTAHLF TO NONRESIDEMS 

(a) If the estate or tmst has income from sources outside of North Carolina and if any of the bene- 
ficiaries are nonresidents of North Carolina, the portion of Federal taxable income of the Fiducian that 
is subject to North Carolina tax must be detennined. If there are lU) nonresident beneficiaries or it there 
is no gross income from dividends, interest, other intangibles or friim sources outside North Carolina 
tor the benefit of a nonresident beneficiaPi', the total income of the estate or tmst is taxable to the 
fiduciary. 

(b) I'he detennination of the amount of undistributed income from intangible property which is for 
the benefit of a resident is based on the beneficiar>''s stale of residence on the last day of the taxable 
year of the trust. In the case of both resident and nonresident beneficiaries, the determination of the 
amount of undistnbuted income from intangible propert\' which is for the benefit of a resident is made 



5:5 NORTH CAROLUy A REGISTER June I, 1990 J.V9 



FINAL RULES 



on the basis that the resident beneficiary's interest for the taxable year relates to the interest of both 
resident and nonresident income beneficiaries for the taxable year. The state of residence of the trustee 
or remainderman has no effect upon the determination of the North Carolina income tax liability of 
the trust. 

History Note: Statutoty Authority G.S. 105-I34.S; 105-160.2; 105-262; 
Eff. June I, 1990. 

.M25 \nMIMSTR.\TION KXI'ENSES 

The federal taxable income of an estate is not adjusted for administration expenses claimed on the 
federal t'lduciars' income tax return in calculating the estate's State taxable income even thougli a de- 
duction may be claimed for such administration expenses on the North Carolina inheritance tax return. 
G.S. 105-134.7 provides that the Secretary- may by nile require transitional adjustments that will assure 
that the change to federal taxable income as a starting point in calculating State taxable income will 
not result in a double allowance of deductions. This applies to the double allowance of deductions for 
income tax purposes and does not apply to a deduction claimed for inheritance tax purposes which is 
allowed under a separate di\'ision of the Re\'enue Laws. 

Ifistoty \ote: Statutoty .iuthnritv G.S. 105-160.2; 105-262; 
Eff. June I. 1990. ' 

SKCriON .3800 - MlSCELL.WFOl S Rl LF.S 

..^.SOl INCOME 
..W02 DEDl niONS 
..^803 OniER HEMS 

Uisloty Xotc: Statutory .-iuthoritv G.S. 8-45.3: /05-/4J(a); 105-141. 1; /05-/42(a); I05-I44ia); 
I05-I44icl; 105-144.3: I05-I4nh: I05-I47(l)h; 105-147(2); 105-147(7); 
105-147(9 )a; 105-147(10); 105-147(17); 105-147(19); 105-147(24); 
105-147(28); 105-148(1); 105-148(2); 105-148(8); 105-159. 1; 105-163. 16(c): 
105-163. 16(e); 105-251; 105-262: 147-77; 
Eff. February I. 19-6: 

Amctided Eff Xovemher /, 1988: February /, 1988: April /, 1987; Eebniaty I. 1987: 
Repealed Eff June I, 1990. 

.3804 MISCEI.L ANEOLS Rl EES 

(a) When a payment is recei\ed by the Dep.irtment of Re\ enue for less than the correct tax, penaltN', 
and interest due under the law and the facts, and the payment includes the statement, "paid in full" or 
other similar statements, the payment will be deposited as required by Ci.S, 144-77. The endorsement 
and deposit of the payment with such statement will not make the statement hindinsj; on the Depart- 
ment of Revenue and will not prevent the collection of the correct balance due. 

(b) I he Department of Re\enue is authorized by law to photograph, photocopy, or microphotocopy 
all records of the Department, including tax returns, and such copies, when certified by the Department 
as true and correct copies, shall be admissable in esidence as the oritiinal would ha\e been. (CJ.S. 
8-45.3) 

(c) In some cases debts ov\ed to certain State and county agencies will be ccillectetl from an indi\id- 
ual's income tax refund. If the agency files a claim with the Department for a debt of at least fifty 
dollars (S5(J.()()) and the refund is at least fifty dollars ($50.f)()|, the debt will be set off and paid from 
the refund. The Department will notify the debtor after the set-off has been finalized and will refund 
any balance which may be due. The debtor wUl be notified and gi\'en an opportunity to contest the 
debt to the agency making the claim before the set-off is completed. 

(d) An individual may elect to contribute all or an_\" portion of his income tax refund, at least one 
dollar (SI. 00) or more, to the North Carolina Nongamc and F.ndangcred Wildlife Fund. Once the 
election is made to contribute, the election cannot be revoked after the return has been filed. The 
contribution will be used to assist in the management and protection of North Carolina's many non- 
game species, including endangered wildlife. I he Nongame and fndangered Wildlife Fund will be the 
primar)' source of money to support much needed research, public education, and management pro- 
grams designated specificall_\' to benefit nongame wrldlife. 



390 5:5 NORTH CAROLINA REGISTER June L 1990 



FINAL RULES 



(c) When an individual checks "Yes" to the question, "Do you want $1.00 to go to this fund (North 
Carolina Political Parties Financing Fund)?" on his tax return, the total funds designated will be dis- 
tributed to political parties in North Carolina on a pro rata basis according to voter registrations. 
Checking "Yes" will neither increase his tax nor reduce his refund. 

(0 Tenancy by the Fntirety: When filing separate returns a determination must be made as to that 
portion of the income or loss from real property that must be reported by each spouse. Under G.S. 
39-13.6, a husband and wife have equal right to the control, use, possession, rents, income, and profit 
from real property held as tenants by the entirety and each spouse is taxed on one-half of the income 
or loss from such property located in North Carolina. WTien real property conveyed jointly in the 
name of husband and wife is located in another state and the share of ownership of each is not fixed 
in the deed or other instrument creating the co-tenancy, each spouse is considered as ha\'ing received 
one-half of the income or loss from the real property unless they can demonstrate that the laws of that 
particular state with respect to the right to the income from the property allocate the income or losses 
in a different manner. 

(g) Cancelled checks, receipts, or other evidence to substantiate deductions on the tax return should 
be kept for a period of at least three years from the due date of the return or three years from the date 
the return is filed, whiche\er is later. Lack of adequate records could result in the disallowance of all 
or part of the deductions claimed. A cancelled check, money order stub, or Departmental receipt 
showing payment of tax should be kept for at least five years from the due date of the tax return. 

(h) An individual may elect to contribute all or any portion of his income tax refund (at least one 
dollar ($1.00) or more) to the North Carolina Candidates Financing Fund. Once the election is made 
to contribute, the election cannot be revoked after the return has been filed. The Candidates Financing 
Fund was created to induce candidates for go\cmor and council of state offices to limit their campaign 
spending, and contributions made from refunds will be placed in the Fund. 

llistoiy Xotc: Slaiuton' Authoritv G.S. S-45.3: 39-13.6; 105-159. 1: 105-163. I6{c); 105-163. 16{e): 
105-251: 105-262:' 105-269.4: 
Eff. June I, 1990. 

SICnON ..woo - NONKKSIDliN TS AND P.\K1-M;.VK KKSIDKN TS 

..?90l DKKIM TION OK KKSIDKNT 

(a) G.S. 105-134.1(12) defines a resident as "an individual who is domiciled in this State at any time 
during the taxable year or who resides in this State during the taxable year for other than a temporaiy 
or transitory purpose". 

(b) Domicile has been defined as the place where an individual has a true, fixed permanent home and 
principal establishment, and to which place, whenever he is absent, he has the intention of returning. 
There are other defmitions of domicile, and this definition is presented sokl\ to be used as a guide in 

determining residency. 

(c) If an individual lives in North (Carolina for more than 183 days of a tax \ears, he is presumed to 
be a resident tor income tax purposes in the absence of factual proof to the contrar\'; but the absence 
ot an indisidual from the State for more than 183 days raises no presumption that he is not a resident. 
The fact of marriage does not raise any presumption as to domicile or residence. 

(d) In many cases, a determination must be made as to when or whether a domicile has been aban- 
doned. A long standing principle in tax administration, repeatedly upheld by tlie courts, is that a man 
can have but one domicile; and, once established, it is not legally abandoned until a new one is estab- 
lished. A taxpayer may have several places of abode in a year, but at no time can an indi\idiial have 
more than one domicile. A mere intent or desire to make a change in domicile is not enough; voluntary 
and positive action must be taken. 

(e) Some of the tests or factors to be considered in detennining the legal residence of an individual 
for income tax purposes are as follows: 

(1) Place of birth. 

(2) Permanent residence of father. 

(3) Family connections, close friends. 

(4) Address given for iniLitary puiposcs. 

(5) Civic tics, church membership, club or lodge membership. 

(6) Bank account or business connections. 

(7) Payment of state income taxes. 

(8) Listing of "legal" or "permanent" address on Federal tax returns. 



5:5 NORTH CAROLIN.A REGISTER June 1,1990 .i9l 



FINAL RULES 



(9) Continuous car registration and driver's license. 

(10) Voting by absentee ballot (one of the best tests to determine permanent residence). 

(11) Occasional visits or spending one's leave "at home" if a member of the armed services. 

(12) Ownership of a home. 

(13) Professional ties--teachcrs, bar, CPA, etc., certificates. 

( 14) Attendance of children at State supported colleges or universities on a basis of residence--taking 
ad\antage of lower tuition fees. 

(15) Execution of approved certificates or other statements indicating permanent residence. 

(16) Expression of intention. 

(f) A legal resident of North Carolina ser\'ing in the United States Aimed Forces is liable for North 
Carolina income tax and North CaroUna income tax should be withheld from his militarv' pay whether 
he is stationed in this State or m some other state or country. 

(g) An individual who enters militar> service while a resident of Noilh Carolina is presumed to be a 
resident of this State for income tax purposes. A residence (or domicile) in tliis State is not abandoned 
until a definite residence is established elsewhere. 

(h) To change legal residence, the serviceman must not only be present in the new location with the 
intention of making it his domicile, but must also factuaUy establish that he has done so. 

Histoiy Sole: Siatutoiy Authoriiv G.S. 105-134.1(12): 105- 1 34.5: 105-262: 
Efj: June I. 19%. ' 

.3902 NONRESIDENTS 

(a) The Statute does not defme the term "nonresident" but administrati\'e practice is to consider a 
nonresident for income tax purposes to he an individual: 

( 1) Who resides in North Carolina for a temporary or transitor\' purpose and is, in fact, a domiciliary 
resident of another state or country; or 

(2) Who does not reside in North Carolina but has income from sources within North Carohna and 
is, in fact, a domiciliar>' resident of another state or countr\'. 

(b) I'nder the Soldiers' and Sailors' Civil Relief Act, a member of the Anned Services who is a legal 
resident of another state stationed in North Carolina by virtue of militar\' orders, is not subject to North 
Carolina income tax on his service pay but other income from employment, a business, or tangible 
property in North Carolina is subject to North Carolina income tax. 

(c) There is no presumption as to the residence of a spouse of a member of the armed forces because 
of marriage. Legal residence will be detennined based on the facts in each case. 

liisioiy Sole: Statiilorv Aiiikoriiy G.S. 105-134.5: 105-262: 
Eff. June I. 1990. ' 

..V)03 l>AKIAK\R RESIDENT 

An individual who mo\es his domicile (legal residence) into or out of North Carolina during the tax 
year, is a part-year resident. 

Ili.Uon Sole: Slatuloiy Aulhorilv G.S. 105-134.5: 105-262: 
Eff. June I, 1990. ' 

..^904 T.VXAHEE INCOME OE NONRESIDENTS .\ND P.\RT-VE.VR RESIDENTS 

(a) Nonresidents and part-year residents are required to prorate their federal ta.xable income to de- 
termine the portion that is subject to North Carolina tax. 

(b) The taxable income of a nonresident subject to North Carolina income tax is detennined by 
multiplying the Federal taxable income, less an>' applicable adjustments, by the percentage obtained 
when di\iding the portion of total Federal income, as adjusted, deri\cd from North Carolina sources 
by the total income from the applicable line of the Federal return, as adjusted. 

(c) For part-year residents who are subject to North Carolina tax, taxable income is detennined by 
multiplying the total Federal income as calculated under the Internal Revenue Code, less any applicable 
adjustments, by the percentage obtained when di\iding the portion of total Federal income recei\cd 
from all sources during the period the indi\idual was a resident of North Carolina, plus an\' income 
recei\ed from North Carolina sources wlule a nonresident, as adjusted, by the total Federal income, 
as adjusted. 



392 5:5 NORTH CAROLlN.i REGISTER June 1,1990 



FINAL RULES 



(d) If an individual files a joint Federal income tax return with his spouse but cannot qualify to file 
a joint North Carolina income tax return because his spouse is a nonresident and had no North 
Carolina taxable income, he must calculate his Federal taxable income on a Federal income tax fonn 
as a married person filing a separate Federal income tax return and attach it to his North Carolina re- 
turn to show how his separate Federal taxable income was determined. In lieu of making the calcu- 
lation on a federal form, an individual may submit a schedule showing the computation of his separate 
federal taxable income provided he submits a copy of his federal joint income return with his North 
Carolina return. 

(e) If an individual has income from sources within another state or countr,' v-hile a resident of North 
Carolina and the other state or country taxes the individual on such income, he may be eligible to claim 
a tax credit on the North Carolina income tax return. 

(f) A nonresident is not entitled to the tax credits for tax paid another state or countrv' or for child 
and dependent care expenses. 

History! Note: Statutoty Authority G.S. 105-134.5: 105-262; 
Eff. June I, 1990. ' 

SKCTION .4000 - S CORPORATION 

.4001 RKPORTING INCOMK - IN (;KNKR AL 

Fffective for tax years beginning on or after January 1, 1989, an individual shareholder of an S cor- 
poration is required to take into account his pro rata share of an S coiporation's net income in the 
manner provided under Section 1366 of the Internal Revenue Code subject to certain adjustments. 

History Xote: Statutoty .iuthoritv G.S. 105-131. 1; 105-262: 
Eff. .lune I. 1990. 

.4002 RK.SIDKN I SIIARFIIOIOFRS 

Since 11)0 percent of the S coiporation's income is included in the Federal taxable income starting 
point, no adjustment because of doing business outside of North Carolina is required by a resident. 

History Note: Statutoty Authority G.S. 105-/3/ : /05-/3/./: /05-/3/.2: /05- / 34.6{a): /05-262: 
Eff. ./une /. /990. ' 

.4003 NONRKSmKNT SI lARFIIOLOERS 

(a) A nonresident shareholder of an S corporation takes into account only his share of the S corpo- 
ration's income attributable to North Carolina in the numerator of the fraction in detcnniniiig that 
portion of Federal taxable income that is taxable to Noilh Carolina. If an S coqioration does business 
in North Carohna and one or more other states, the income attnbutable to North Carolina is deter- 
mined by the same apportionment formula as used for other corporations. 

(b) All nonresident shareholders must include an agreement with the first S corporation return tiled 
with North Carolina agreeing to be liable and subject to the laws of North Carolina for individual in- 
come tax purposes; otherwise, the S coiporation becomes liable for the tax at seven percent of the in- 
come attributable to such nonresident shareholders. 

(c) A nonresident shareholder in an S corporation may claim the proportionate share of the tax paid 
on his behalf by the S corporation to North Carolina on his share of the S corporation income. 

History Note: Statutoty Authority G.S. /05-/3/./: I05-/3/.5: /05-/3/.7: /05-/34.5( d ): /05-262: 
Eff. June /, /990. 

.4004 lA.X CRKDI IS 

If part of the S corporation's incoine is earned within and taxed by another state, either to the indi- 
vidual or to the corporation, a resident shareholder is entitled to a tax credit on his individual income 
tax return for his share of the tax paid to the other state. A shareholder claiming the tax credit must 
attach a schedule to his income tax return reflecting the total amount of tax paid to the state by the S 
corporation, and explaining how his pro rata share of the tax was detemiincd. A tax credit is also al- 
lowed to resident shareholders with respect to the corporate tax paid to North Carolina by an S cor- 
poration for a fiscal year ending in calendar year 1989. Nonresident shareholders are not allowed credit 
for tax paid to another state. 



5:5 NORTH CAROLINA REGISTER June 1,1990 393 



FI^AL RULES 



History \oie: Stdtutorv Auihority G.S. 105-131. 8; 105-262; 
Eff. June I, 1990. 

.4005 BASIS IN STOCK 

(a) Due to different tax treatment of an S corporation's income for State and Federal purposes for 
taxable years beginning before January 1. 19S9, a shareholder's basis in the stock of an S corporation 
for State tax purposes may be different than for Federal tax purposes; thereby causing transitional ad- 
justments in determining North Carolina taxable income upon receipt by the shareholder of distrib- 
utions from the S corporation and upon disposition of the S corporation stock. 

(b) The initial basis of the stock in an S corporation to a nonresident of North Carolina is zero, and 
the nonresident shareholder is not taxed on distnbutions from the corporation and recognizes no in- 
come or loss upon disposition of the stock. A nonresident shareholder s basis in the S corporation 
stock is adjusted for his pro rata share of the income or loss of the corporation. 

(c) .-\ resident shareholder's initial basis in the stock of an S corporation is determined as of the later 
of the date the stock is acquired, the effective date of the S corporation election, or the date the share- 
holder became a resident of North Carolma. .V resident shareholder's basis in the stock is increased 
by his pro rata share of the corporation's income adjusted pursuant to G.S. 105-131.2 except for income 
exempt from Federal or State income taxes and deductions for depletion in excess of the basis of the 
property being depleted. 1 he basis is decreased by distributions to the extent deemed a return of basis; 
a pro rata share of the losses of the corporations as adjusted; nondeductible expenses of the corporation: 
and the amount of the shareholder's deduction for depletion of oil and gas wells to the extent the de- 
duction does not exceed the proportionate share of the adjusted basis of that property allocated to the 
shareholder. The adjustments to the basis do not applv to tax periods beainnins prior to January 1, 
19S9. 

HistoiT Xote: Statuton .-huhonty G.S. J05-J3I.3: 105-262; 
Eff. June I. 1990. 

.4006 DISTRIBLTIONS 

(a) .\ resident shareholder must take into account distributions from an S corporation in computing 
North Carolina taxable income to the extent the distributions are characterized as di\-idends or as gains 
pursuant to Section 136S of the Internal Revenue Code. Section 136S of the Code pro\idcs that if the 
S corporation has no accumulated earnings and profits, the amount distributed to a shareholder reduces 
the adjusted basis in liis stock. If the S corporation has earnings and profits, the distribution is applied 
in the following order: 

(1) To the Accumulated Adjustments Account (.A.V\), which basically includes the income during 
the period the corporation has been an S corporation reduced by its losses and distnbutions 
during that period. The .-V-V-V for State income tax purposes does not include the Federal .\.V\ 
for tax years beginning prior to January 1. 19S9. The shareholder does not take into account 
distributions from the .V.-V.-\ in determining taxable income but such distributions reduce the 
adjusted basis of his stock. 

(2) To Famings and Profits (E and P): .An S corporation is not considered to have earnings and 
profits for State tax purposes for years in which it operates as an S corporation after January 1. 
19S9. The E and P account basically includes the earnings and profits on hand from the period 
the corporation was a C corporation; and for State tax purposes, the E and P account also in- 
cludes the undistributed earnings and profits of the S corporation from tax years beginning be- 
fore January," 1, 19S9. (the Federal .A.A.-\ that existed on the day North Carolina began to 
measure the S corporation shareholder's income by reference to the income of the S corpo- 
ration). The amount distributed to the shareholder from the F and P account is taxed to the 
shareholder as a di\idend. Since the State E and P account includes the Federal A.V\ that ex- 
isted prior to the change in State law taxing the S corporation income to the shareholders, a 
transitional adjustment must be made to increase State taxable income for any distributions from 
the Federal .A.A,\ that existed prior to the law change. 

(3) To the basis of the shareholder s stock: Any excess over the shareholder's basis is ta.xed as a 
capital gam. 

(b) If an S corporation has accumulated earnings and profits, the shareholders may elect to treat 
distributions from the S corporation as being paid first from earnings and profits pro\ided all share- 
holders consent to the election in the vear of the distnbution. 



-^9^ 5:5 yORTH CAROL[.\A REGISTER June 1. 1990 



FINAL RULES 



History Note: Statutory Authority G.S. 105-131.6; 105-262; 
Eff. June I, 1990. 

.4007 FISCAL YEAR S CORPORATION 

(a) Section 1366 of the Internal Revenue Code requires a shareholder to include his share of the S 
corporation's net income in his Federal taxable income for the tax year that includes the last day of the 
S corporation's tax year. Therefore, a calendar year shareholder must include his share of the net in- 
come of an S corporation filing on a fiscal year basis ending in 1989 in his North Carolina taxable in- 
come for the tax year 1989 even though for corporate income tax purposes the same income is taxed 
to the corporation because the corporation's tax year began before January 1, 1989. A tax credit is 
allowed to resident shareholders with respect to the corporate tax paid to North Carolina by an S cor- 
poration for a fiscal year ending in calendar year 1989. 

(b) The amount of the S corporation's net income required to be included by the shareholder in his 
North Carolina taxable income will increase liis accumulated adjustments account. Distributions to 
the shareholder from the accumulated adjustments account are not included in the shareholder's taxable 
income. 

Iliston' Note: Statutorv .iuthoriiv G.S. 105-131 .1 (b); 105-262; 
Eff. June I. 1990. ' 

SECTION .4100 - TA.XABI.E STATUS OV DISTRIIU TIONS FROM REGULATED INVESTMENT 

COMPANIES 

.4101 GENER.VL 

(a) Distributions received from regulated in\cstmcnt companies (mutual funds) by a shareholder who 
was a North Carolina resident must be included in his North Carolina taxable income to the same ex- 
tent included in his Federal taxable income; except, an amount not included in his Fedenil gross income 
which was determined to be an "exempt interest di\idcnd" for Federal income tax purposes, must be 
added to Federal taxable income to the extent it represents interest on obligations of states other than 
North Carolina and their political subdivisions. 

(b) Distributions from a regulated investment company other than "capital gain distributions'' and 
"exempt interest di\'idends" are included in Federal taxable income in the same manner as distnbutions 
of other coiporations. Distributions from earnings and profits are ordinap," di\idends (taxable divi- 
dends) unless the mutual fund notifies the taxpayer to the contrary-. 

(c) Capital gain distributions are paid by mutual funds from their net realized long-term capital gains. 
The individual receiving a capital gain distribution must report the distribution as a long-term capital 
gain on his Federal income tax return. 

llistoiy Xote: Statutorv .-iuthorily G.S. 105-134.5; 105-262; 
Eff June 1, 1990. ' 

.4102 E.XEMPT IN lEREST Dl\ IDENDS 

(a) A mutual fund is qualified to pay exempt interest di\-idends only if at the close of each quarter 
of its taxable year at least 50 percent of the value of the total assets of the company consist of state and 
local bonds, the interest from which is exempt from Federal income tax and certain other obligations 
on which the interest is exempt from Fedenil income tax under pro\'isions of Federal law other than 
the Internal Revenue Code, as those provisions of the law were in effect on Januarv^ 6, 1983. A mutual 
fund paying exempt interest dividends to its shareholders must send its shareholders a statement within 
60 days after the close of the taxable year showing the amount of exempt interest dividends. The ex- 
empt interest di\'idends are not required to be included in Federal taxable income. 

(b) Since interest from states other than North Carolina and their political subdivisions is required 
to be added to Federal taxable income in calculating North CaroHna taxable income, the exempt in- 
terest dividends received from mutual funds must be added to Federal taxable income to the extent such 
dividends do not represent interest from bonds issued by North Carolina and political subdivisions of 
North Carolina pro\'ided the mutual fund furnishes a supporting statement to the taxpayer. In the 
absence of such statement, the total amount designated as exempt interest must be added to Federal 
taxable income in computing the taxpayers North Carolina taxable income. 

Histofy Xote.- Statuto!y .-luthority G.S. 105-154.6(c); 105-262; 
Eff. June 1, 1990. ' 



5:5 NORTH CAROHN.A REGISTER June 1, 1990 395 



FINAL RULES 



.4103 OFUirVARY DIMDKNDS 

The ordinap,' di\idcnds from mutual funds are included in Federal taxable income and no adjustment 
to Federal taxable income is nccessarv' in determining North Carolina taxable income. /Vlthough the 
ordLnan,' dividends may include interest earned by the fund on obligations of the United States Gov- 
ernment or its possessions, the dividends are reported in the same manner as distributions from other 
corporations, and no deduction is allowed from Federal taxable income with respect to such interest. 
The amount of the ordinan,' dividends (taxable dividends) will qualify for the dividend tax credit pro- 
vided 50 percent or more of the income was from obligations of the United States Government or its 
possessions and obligations of the State of North Carolina or its political subdivisions. 

UistoiT \ote: Staiuton- Authnrilv G.S. 105-130.7; 105-151.19: 105-262: 
Eff. June I. 1990. 

.4104 CAIMI AL GAIN DIS IKIBLTIONS 

The portion of distributions from a regulated investment compan\' that represents capital gain is re- 
portable on the federal income tax return as capital gain income and not di\'idend income. Therefore, 
under G.S. 105-134.6(b)(2| capital gains distributable to a shareholder who is a resident of North 
Carolina and attributable to the sale of an obligation the profit from which is exempt by Noith Carolina 
statute is deductible from federal taxable income in determining the North Carolina taxable income of 
an individual, trust and estate. 

Ifiston- .\'oie: Statuton Authoritv G.S. 105-1 34.6{ b)(2j: 105-262; 
Eff- June I, 1990. ' 

.4105 i)i\ iokm:) tax ckkdit 

.A corporation may deduct the proportionate sh,irc of di\idends received from a regulated investment 
company which represents and corresponds to income received by such regulated investment company 
which would not be taxed h\ North Carolina if recei\'cd directly by the corporation. The ordinary 
di\idends from a mutual fund qualify for the di\idend tax credit if more than 50 percent of the income 
from the fund represents interest on direct obligations of the F'nited States Go\emment or its pos- 
sessions and from North Carolina obligations and those of its political subdi\isions. The di\idend tax 
credit is equal to six percent of the dividends included in Federal gross income plus any amount of an 
"exempt interest dividend" added to Federal taxable income that represents interest on obligations of 
states other than North Carolina and their political subdivisions, up to a maximum tax credit of three 
hundred dollars (S300.00). 

Histoiy Sole: Statuton Authoritv G.S. 105-151.19; 105-262; 
Eff. June I, 1990. ' 

SLIJCll.M'I KR 6C - \\rmilOM)IN(; 

SKCTiON .0100 - wrmiioi niN(; incomk tanks 

.0102 \\1 IIIIIOI.DING [ROM W.VGHS 

Fmplo\ers must withhold North Carolina income tax from the wages paid to their employees ac- 
cording to tables prepared by the North Carolina Department of I\e\enue or by using an acceptable 
alternate method and they must pay over the amount withheld to the Department. The manner in 
which this is required to be done is explained in the booklet, "Income Fax W'ithholdmg Tables and 
Instrtictions for Employers", Form NC-3n. 

Uision' Sotc: Staiutoiy Authoritv G.S. 105-163.1: 105-163.1 i 4 ): 105-163.1(5); 105-163.1 i6j; 
105-163.2; 105-163.3: 105-163.6; 105-163.18: 105-262: 
Eff Febmaiy 1. 1976; 
.■{mended Eff June 1. 1990; December 1, 19SS; April 1, 19S7. 

.010.^ INCOMK NOT SUB.IECT TO WKI IIHOKDING 

(a) No withholding is required for any income which is exempt from income taxation nor is with- 
holding required for other t\pes of income specitlcally exempt b\" other pro\isions of the North 



396 5:5 NORTH CAROLINA REGISTER June 1.1990 



FINAL RULES 



Carolina statutes or those provisions of the federal statutes which deny to the states the right to impose 
any income tax on certain types of income. 

(b) In addition to those items which arc specifically exempt from income taxation, there are other 
classes of income payments which arc taxable for income tax purposes but which arc not subject to 
withholding and for which the recipients are required to pay estimated income tax. These classes of 
income are as follows: 

(1) Income payments to workers employed on the farm for services rendered on the farm in the 
production, har\'csting, and transportation of agricultural products to the market for the 
farmer-employer. 

(2) Income payments for the performance of domestic service in a private home, local college club, 
or local chapter of a college fraternity or sorority; 

(3) Income payments for services not in the course of the employer's trade or business, unless for 
the service the employee receives fifty dollars ($50.00) or more in cash remuneration for any 
calendar quarter in which he is regularly employed to perform the service; 

(4) Fees paid to a public ofticial; 

(5) Income paid to, or on behalf of, an employee or his bcncficiaiy, from a trust described in Section 
401(a) of the Internal Revenue Code or under an annuity plan meeting the requirements of this 
Section, unless such payment is made to an employee of the trust as remuneration for services 
rendered as such employee and not as a beneficiary of the trust. Report of income, paid to 
benctlciaries may be made on Fonns NC-1099 or copies of federal Fonn \\'-2P or acceptable 
substitutes. 

(6) If an employer enters into a voluntary agreement \\\\\\ the employee to withhold North Carolina 
tax, the amount withheld will be accepted and the employee will receive credit on liis annual 
income tax return provided the niles wliich apply to withholding are followed. Since the 
agreement to withhold is voluntan' between the employer and the employee and is not leciuired 
by law, the employee should understand that he cannot receive credit for any amount witiiheld 
that is not properly paid to the Department of Revenue. 

Ilistoiy Sole: Statutoiy Aulhorkv G.S. 105-154; 105-163.1(6); 105-163.11; 105-163.14; 
105- 163.1 S; 105-262; 
Eff. Fehn/an' /, /976; 
Amended F.ff. June I, 1990. 

.0104 KXEMPIION CERTII ICMKS 

ffi.Uory .\ole; Filed as a Temporaiy Amendment [(d) and (fjj Eff. November 16. 19^1 . for a 
Period of 46 Days to Expire on Janiiarv I. I9S2; 
Statuton' Authoritv G.S. 105-163.3; 105-163.5; 105- 1 63.1 S; 105-262; 
Eff Februarv I. 1976; 

Amended Eff. Januaty /, I9S9; .lime /, I9S2; .lanuary /, I9S2; April 12. 1981; 
Repealed Eff. June I, 1990. 

.0105 vv.ac;ks 

Wages consist of all compensation, whether in cash or other form, paid for services pciformed by an 
employee, including salaries, fees, and commissions and payments for senices performed in prior peri- 
ods, such as vacation pay, bonuses, and pensions. Wages paid in a fonn other than money are meas- 
ured by the fair market value of the goods or consideration given in payment, and withholding is 
required whether payments are based on time (hour, day, week, et cetera), or on piece work, commis- 
sion, or percentage. F.mployers arc rcquu'ed to withhold on travel expenses, sick pay, supplemental 
unemployment compensation, fringe benefits, and tips to the same extent reciuiird for Federal income 
tax puiposcs. 

Uistoty \'ote; Statutory Authoritv G.S. 105-163.1(6); 105-163.2; 105-163. /S; 105-262; 
Eff Februarv 1. 1976; 
Amended Eff. .hine 1. 1990. 

.0113 BOM S P.VYMKNTS 

.0114 IKWKI. .\l I.OW.KNCFS 

.0115 MOMNG K.XI'KNSK RKIMIURSEMENT 

.0116 WITHHOLDING FROM HI'S 



5:5 ISORTH C.iROLINA REGISTER June I, 1990 397 



FINAL RULES 



History S'ote: Statutory Authority G.S. 105-163.1(6); 105-163.2: 105-/63.4: 105-163.18: 105-262: 
Eff. February I. 1976: 

Amended Eff. Slav I, 1984: February 21, 1979: 
Repealed Eff June I, 1990. 

.0117 SLPPI FMEMAL WAGE PAYMENTS 

(a) If an employer pays supplemental wages separately (or combines them with regular wages in a 
single payment and specifies the amount of each), the income tax withholding method depends partly 
on whether the employer withholds income tax from the employee's regular wages. 

(b) If tax has been withheld on the regular wages and the supplemental amount is not paid in a single 
payment together with regular wages, the employer may treat the supplemental wages as wholly sepa- 
rate from the regular wages and apply a flat rate of six percent to the supplemental wage payment 
without making any allowance for exemptions. Otherwise, the supplemental wages are added to the 
regular wages for the most recent payroll period. The income tax is tlgured as if the regular wages and 
supplemental wages constitute a single payment. The tax already withheld from the regular wages is 
subtracted from this amount. 

(c) The remaining tax is then withheld from the supplemental wages. If the employer did not with- 
hold income tax from the emplo\ee's regular wages, the employer must add the supplemental wages 
to the employee's regular wages paid for the current or last preceding payroU period and withhold tax 
as though the supplemental wages and regular wages were one payment. 

(d) Tips treated as supplemental wages. The employer withholds the income tax on tips from wages 
or from funds the emploNee makes available. If an employee recei\es regular wages and reports tips, 
the emplo\er figures income tax as if the tips were supplemental wages. If the employer has not 
withheld income tax from the regular wages, the employer adds the tips to the regular wages and 
withholds income tax on the total. If the employer withheld income tax from the regular wages, the 
employer can withhold on the tips as explained in this P;iragraph. 

History Sote: Statutory Authority G.S. 105-163.1 {6 1: 105-163.2: 105-163.18: 105-262: 
Eff. Februan- I, /9^6; 
.■i mended Eff June 1. 1990. 

.0118 SICK PAY 

Histon- Sote: Statutory- Authority G.S. 105-163.1 {4 J : 105-163.1 {5 J; 105-163.1(6); 
105-163.2: 105-163.18: 105-262: 
Eff February 1, 1976: 
Repealed Eff June 1, 1990. 

.0120 RECIPROCITY OF TAX CREDITS 

North Carolina does not allow tax credit to noruesidents for income tax paid to another state or 
countn,": therefore, any relief from double taxation must be granted by the state of residence. North 
Carolina provides such relief to its residents as explained in 17 NCAC 6C .0107. 

History Sote: Statutory Authority G.S. 105-151 {al; 105-163.22; 105-262; 
Eff Februar}' 1. 19~6: 
Amended Eff. June 1. 1990. 

.0122 FRINGE BENEFITS 

History \ote: Statutory Authority G.S. 105-163.1 (6 1 ; 105-163.2; 105-163.18: 105-262; 
Eff July 1, 1986; ' 
Repealed Eff June 1. 1990. 

.0123 EMPLOYEE'S WITHHOLDING ALLOW.VNCE CERTIFIC.VTE 

(a) Each new employee, before beginning employment, must furnish lus employer with a signed 
North Carolina Employee's W'itliholding .-Vllowancc Certificate, Form NC-4. A ccrtillcate filed by a 
new employee is effective upon the first payment of wages thereafter and remains in effect until a new 
one is furnished. State and Fcder;d definitions of dependent, single person, married, head of household. 



398 5:5 NORTH CAROLISA REGISTER June I. 1990 



FINAL RULES 



and qualifying widow(er) arc the same; however, the number of allowances an individual is entitled to 
will diflcr. (Federal Exemption Certificates Are Not Acceptable.) If an employee fails to furnish an 
exemption certificate, Form NC-4, the employer must withhold tax as if the employee is single with 
zero allowances. 

(b) The employer is not required to ascertain whether or not the total amount of allowances claimed 
is greater than the total number to which the employee is entitled. If, however, the employer has reason 
to believe that the number of allowances claimed by an employee is greater than the number to which 
such employee is entitled, the employer is requested to notify the Department of Revenue immediately. 

(c) If an employee's allowances should decrease, requiring more tax to be withheld, the employee is 
required to furnish his employer with an amended certificate within ten days after the change. Should 
the allowances increase, requiring less tax to be withheld, the employee may furnish his emploj'er with 
an amended certificate at any time after the change occurs. 

Hisioty Note: Statutoiy Authoritv G.S. 105-163.3: 105-163.5: 105-163. IH; 105-262: 
Eff. June I, 1990. 

.0124 AnnnioNAi. wi nmoLniNG ai.lowancks 

Additional \\ ithholding allowances may be claimed by taxpayers expecting to have allowable itemized 
deductions exceeding the standard deduction or allowable adjustments to income. (Jne additional al- 
lowance may be claimed for each two thousand dollars ($2,000) that the itemized deductions are ex- 
pected to exceed the standard deduction and for each two thousand dollars ($2,000) of adjustments 
reducing income. If an employee will be entitled to a tax credit, he may claim one additional allowance 
for each one hundred forty dollars ($140.00) of tax credit. 

Ilistcny Note: Statutoiy Authority G.S. 105-163.3; 105-163.5; 105-163.18; 105-262: 
Eff. June I, 1990. ' 

.0125 PKNALTY 

G.S. 105-163.5 provides a civil penalty against an employee who furnished his emplo\er with an al- 
lowance certificate that contains information which has no reasonable basis and results in a lesser 
amount of tax being withheld than would have been withheld had the employee furnished reasonable 
uifonnation. The penalt\ is 50 percent of the amount not properl)' vsithheld. 

Histofy i\ote: Statutoiy Authority G.S. 105-163.5: 105-262; 
Eff. June I, 1990. 

.0126 SI HMISSION OI CKKIAIN WmiHOI.DINC Al I OWANCI riKIM KAI KS 

(a) An employer is required to submit copies of any withholding allowance certificates on w hich the 
employee claims more than ten w ithholding allowances or claims exemption from withholding and the 
employee's wages would normally exceed two hundred dollars ($200.00) per week. 

(b) An employer fding quarterly withholding reports is required to submit copies of the certificates 
received during the quarter at the time for filing his quarterly report. An emplo\er filing monthly 
withholding rept)rts is required to submit copies of the certificates iecei\ed dunng the quarter at the 
time for filing his monthly report for the third month of the calendar quarter. Copies may be submitted 
carUer and for shorter reporting periods. 

(c) Copies of the certificates, along with a letter showing the employer's name, address, wilhlwkliiig 
identification number, and the number of certificates submitted, are to be mailed to: North Carolina 
Department of Revenue, Withholding Section, P.O. Box 25000, Raleigh, North Carolina 27640. 

(d) The employer shall withhold on the basis of the certificate until wntten notice is recei\cd from 
the Department that the certificate is defective. As part of that written notice, the Department will 
ad\ise the employer to ignore the allowance certificate filed and to withhold on a number specihed. 

(e) I'he employer shall prompth' furnish the employee a copy of the written notice. 

(f) If the employee files a new certificate, the employer shall honor that certificate onh if the employee 
does not claim exempt and claims a number smaller than the number allowed in the Department's 
written notice. If the new certificate claims a number larger than the employee has been allowed and 
the employee specifies, in writing, any circumstances as justification to support the claims, the employer 
must forward a copy of the certificate and the employee's written statement to the Department tor re- 
view. The employer shall contmue to withhold as specified in the Department's written notice until 



5:5 NORTH CAROLINA REGISTER June I, 1990 .^99 



FINAL RULES 



written notice is received from the Department advising the employer to withhold on the basis of the 
new certificate. 

(g) To increase withholding an employee may claim less than his allowable allowances or may enter 
into an agreement with his employer and request that an additional amount be withheld by entering 
the desired amount on Form NC-4. 

(h) An employee working for two or more employers should claim his allowable allowance with only 
one employer and claim zero allowances with the other employers. 

(i) If an employee claims total exemption from withholding, his wages will be exempt from with- 
holding of North Carolina income tax for the remainder of the calendar year unless the employee 
withdraws the statement during the year. An employee claiming exemption from withholding must 
complete a new certificate by Februarv' 15. If the employee docs not complete a new certificate, the 
cmploNcr must withhold on the basis of a single indi\'idual with zero withholding allowances. 

Ilistnn- .^ote: Statutory Aulhoritv G.S. 105-163.5: 105-163.18: 105-262; 
Eff. June I, 1990. ' 

SKCnON .0200 - 1 HINT, WITIIIIOIDING REPORTS 

.0201 NKW K.MPI OMRS 

North Carolina does not use a deposit system for income tax withheld. Fach new employer who is 
required to withhold North Carolina income tax must complete and tile with the Department an ap- 
plication for a withholding identification number. Form NC-1, which can be obtained from any office 
of the Department. A withholding identification number wiU be assigned which should be recorded in 
a permanent place and used on all reports and correspondence concerning withholding. 

Histon- Sotc: Statuton .iuthoritv G.S. 105-/63. IS: 105-262: 
Eff. Febnian I, 1976: 
Amended Eff June I. 1990. 

.0203 ANM Al. RKPORIS 

(a) At the end of each calendar year employers are required to furnish wage and tax statements. Form 
NC-2, to employees. Two copies must be furnished to the employee and one copy must be furnished 
to the Department. The Internal Revenue Service supplies a six part Form \V-2 which will produce 
the required federal and North Carolina statements in one packet. 

(b) The copies of the wage and tax statements for the Department of Re\enue must be filed with the 
Annual Reconciliation of North Carolina Income Tax Withheld, Form NC-3, or NC-3.\1. 

(c) Reports of payments of income, interest, rents, premiums, dividends, annuities, remunerations, 
emoluments, fees, gains, profits, taxable meal reimbursements, and other determinable annual or peri- 
odic gains during a calendar year must be made on Information at the Source Reports, Form NC~-1()9'). 
if the payments have not otherwise been reported. 

Uistnn Sote: Statutoiy Authoritv G.S. 105-154: 105- 1 63. 7: 1 05- 1 63. IS: 105-262: 
Eff Febnian' I. 1976: 
Amended EJf June I, 1990: .ipril 12. /'«/. 

.0204 AMOUNTS WmiMKI.D ARK HFI.D IN TRl ST FOR IHE SECRF.TAR\ OF RF\ FNl E 

(a) The tax withheld or required to be withheld is due to be paid at the time that the return is due 
to be filed. 

(b) A penalty of 25 percent of the amount due is imposed for failure to withhold, to file a report on 
time, or to pay the tax when due. 

(c) i\n employer who fails to withhold or pa\' the amount required to be withheld is personally and 
indi\ iduaU)' liable for the tax. If an employer has failed to w ithhold or to pay o\ er income tax withheld 
or required to ha\e been withheld, a 100 percent penalty may be asserted against the responsible cor- 
porate officers or other responsible person whenever such taxes cannot be immediately collected from 
the emplo) er. .More than one person may be hable as a person responsible for the pa\ ment of with- 
holding taxes: however, the amount of the income tax withheld or required to have been withheld will 
be collected only once, whether from the emplo\er or one or more responsible persons. The term 
"responsible person" includes any person who is in a position to control the finances of the employer 
or has the authority or ability to determine which obligations should or should not be paid. Respon- 



400 5:5 NORTH CAROLINA REGISTER June 1. 1990 



FINAL RULES 



sibility is a matter of status, duty, and authority, not knowledge. For the penalty to apply, it is not 
necessary that the failure to collect and pay the withholding amounts was willful; it is only necessary 
that the responsible person failed to pay the tax withheld or required to have been withheld to the 
Secretary of Revenue regardless of his reasons or the knowledge he had of such failure. 

(d) WTien the Department of Revenue determines that collection of the tax is in jeopardy, an em- 
ployer may be required to report and pay the tax at any time after payment of the wages. 

Histoty Note: Statutory Authoritv G.S. 105-163.6; 105-163.17; 105-163.18; 105-241 . 1 (g); 105-262; 
Eff. June I, 1990. 

SUBCHAPTER 6D - ESTIMATED TAX 

SECTION .0100 - III.INC; ESTIMATED INCOME TAX PAYMENTS 

.0102 REQLIKEMENTS FOR FILING 

(a) An individual is required to pay estimated income tax if the tax shown due on the income tax 
return for the taxable year, reduced by the North Carolina tax withheld and allowable tax credits, is 
forty dollars ($40.()()) or more regardless of the amount of income the individual has that is not subject 
to withholding. 

(b) Married indisiduaJs can make joint payments of estimated income tax even if they are not living 
together; however, they are not entitled to make joint estimated tax payments if they are separated 
under a decree of divorce or of separate maintenance. Also, they may not make joint estimated tax 
payments if either of them is a nonresident alien or if either of them ha\'e different tax \ears. Whether 
a man and wife make joint estimated tax payments or separate pa>ments wiU not affect their choice 
of filing a joint income tax return or separate return. If they make joint payments and then tile separate 
returns, they may divide the estimated tax payments between them. 

(c) A taxpayer tiling a short period return because of changing his income year is required to make 
estimated income tax payments on the installment dates which fall within the short period and 15 days 
after the close of the short period which would have been due had he not changed his income year. 
The penalty for underpayment of estimated income tax for a short period will be computed for the 
period of underpa> ment based on the tax shown due on the short period return and computed in the 
same manner as it would have been computed had the taxpayer not changed his income year. 

(d) An individual may elect to have his or her income tax refund applied to estimated income tax for 
the following year. f"or example, an individual due a refund on his l')S9 income tax return may ha\e 
all or any portion of the refund applied to his estimated tax for 19'-)0. i'he individual may not however, 
fde a 1989 tax return in 1991 and request the refund be applied to his 1991 estimated tax since the re- 
fund can only be applied to the tax year which follows the year for which the request for refund is made. 

(e) If an individual makes a valid election, that individual may not revoke the election after the return 
has been filed in order to have the amount relunded or applied in any other manner, such as an offset 
against any subsequently determined tax liability. 

tlistof-v Note: Statutory Authoritv G.S. 105-163.15; 105-163. IS; 105-262; 
Eff. Februan' 1. 1976; 
Amended EJf June 1. 1990; February 1, 198S; August 1. 1986; May I. 1984. 

SECTION .0200 - FENALIY FOR UNDKKPAV.MENT OF FSIIMATEO INCOME FAX 

.0201 GENERAL 

A civil penalty may be due for underpayment of estimated income tax. Ihe penalty is computed 
separately for each payment period, therefore an individual may owe the penalty for an early period 
even if that individual later paid enougli to make up the underpayment. If an individual did not pay 
enough tax by the due date of each of the payment periods, he may owe a penalty even if he is due a 
refund when he iiles his return. 

Ilistot-v Note: Statutor\> Authoritv G.S. 105-163.15; 105-236(9); 105-241 .1 (i); 
105-262; 105-163.18; 
Eff Februan' 1, 1976; 
.Unended Eff. June 1. 1990; Augu.sl 1. 1986; Fehnuuy 21. 1979. 

.0202 THE AMOUNT OF UNDERPAYMENT (TAX.VBLE \EARS BEFORE 1986) 



5:5 NORTH CAROLINA REGISTER June I, 1990 401 



FINAL RULES 



.020.1 rilK PKKIOD OK I NDF.KI'AVMF.NT (TAXABLE YEARS BEFORE 1986) 
.0204 AN OiniNG PENAl IV (TAXABLE YEARS BEFORE 1986) 

Ilistoty Xote: Statutory Authority G.S. 105-163. 1 5(b); 105-163. 15(c) : 105-163. 15(d); 
105- 1 63 AS; 105-262; 
Eff. Febt-uarv I, 1976; 

Amended Eff. June I. I9S2; April 12, I9SI; Febniar^- 21, 1979; 
Repealed Eff. June I, 1990. 

.0205 ESTIMArEI) TAX l'A\ME>TS (TAXABLE YEARS AFLER 1986) 

Hi.ston .\'ote; Statutory Authority G.S. 105-163.15; 105- 1 63. IS; 105-262; 
Eff August I, 1 986; 
Repealed Eff June I. 1990. 

.0206 AXOiniNG PENALIY 

(a) The penalty for undcrpa\incnt of estimated income tax will not apply if the individual makes 
payments of estimated income tax on each installment date for 25 percent of the lesser of: 

(1) f^O percent (66.67 percent for faimers and fishermen) of the tax (after tax credits) on the current 
year's return, 

(2) 100 percent of the tax on the prccedmg year's return (pro\ided it was a taxable year of 12 months 
and the individual filed a return for that year), or 

(3) SO percent (66.67 percent for farmers and fishermen) of the tax determined b\ annualizing the 
income received during the year up to the month in which the installment is due. 

/\lso, no penalty for underpayment will be due if an indi\idual had not tax liabihty for the preceding 
year or if the total tax shown on the current-year return minus the amount paid througli w ithholding 
is less than forty dollars ($40.00). 

(b) Effective for taxable years beginning on or after Januars' 1. I'^^^O. the percentage of the required 
annual payment will increase from 80 percent to *)0 percent. 

(c) For taxable years beginning in 1989, the estimated income tax penalty does not apply to an 
underpayment to the extent that the underpayment was created or increased by changes in the law 
under the Tax Fairness .Act of l'^S9 which adopts taxable income determined under the Internal Re- 
\enue Code as the starting point for detennining North Carolina taxable income. 

lli.ston- Sate: Statutory Authority G.S. 105-163.15; 105-/63.18; 105-262; 
Eff June 1. 1990. ' 

.0207 LNDEKPAYMEMS 

(a) An underpay meat is the excess of the required uistallment (or. if lower, the annualized income 
instaUment) for a payment period o\er the portion of the amount paid by the due date that is not ap- 
plied to an underpa\ ment for an earlier payment period. 

(b) Payments include income tax witlilield and are considered pa\ mcnts of estimated tax in equal 
installments on the required installment dates (usual four), unless the indnidual can pro\e othen\ise. 
A paxment of estimated tax is credited against unpaid mstaUments in the order m which the installments 
are required to be paid. 

Uiuoty Sote: Statutor\- Authority G.S. 105-/63.15; 105-163.18; /05-262; 
Eff. June /. /900. ' 

.0208 0\ERPAYMEMS 

.An o\'erpayment for any period occurs when the withholding and estimated tax pa\ments are more 
than the total of any underpayments for an eariier period plus the lesser of the required installment or 
the annualized income installment for the period, if there is an o\erpayment for a period, it should 
be carried to the next period and added to the withh(ilding and estimated tax paid for that later period 
to determine an\ underpa\"ment or o\'erpa\ment for that later period. 

lliston Xote: Statuioiy .lutliority G.S. 105-163.15: 105-/63.18; 105-262: 
Eff June I. 1990. ' 

.0209 DFTERMIMNG AN LNDLRr.V^MENT 



402 5:5 NORTH CAROLINA REGISTER June 1,1990 



FINAL RULES 



(a) No penalty will be due if the estimated tax payments were made on time and the payment for each 
period was at least as much as cither the required installment or the annualized income installment for 
the period. Use Form D-422, Penalty for Underpayment of Estimated Income Tax, to determine any 
underpayment. 

(b) The required installment for any payment period is the lesser of 20 percent (22.5 percent beginning 
January 1, 1990) of the tax shown on the current-year return or 25 percent of the tax shown on the 
prior-year return (if the prior-year return covered all 12 months of the year). However, if the annualized 
income installment for any period is less than the required installment for the same period and the 
annualized income installment is used in determining the underpayment, add the difference between the 
annualized income installment and the required installment to the required installment for the next 
period. If the annualized income installment for the next payment period is used, add the difference 
between the annualized income installment for that period and the required installment (as increased) 
for that period to the required installment for the following payment period. 

(c) There wiU be no underpa\mcnt for any payment period in which the estimated tax payments, 
reduced by any amounts applied to underpayments in earlier periods, were paid by the due date for the 
period and were at least as much as the annualized income installment for the period. 

Ilistoty Note: Statutory Authoritv G.S. 105-163.15; 105-163.18: 105-262; 
Eff. June I, 1990. ' 

.0210 PERIOD OF INDKRP A\MKNT 

(a) Ihe penalty is applied to the number of days that the installment was not paid. For tax year 1989, 
for example, detennine the period of the undeij>ayment by counting the number of days after the due 
date of the installment to and including the date of pa\ment, or April 16, 19'^)0. wliichever is earlier. 
Fiscal vcar taxpayers use the 15th dav of the fourth month followiuij the close of the fiscal \ear instead 
of April 16, 1990'. 

(b) Calendar year taxpayer's payments were due on /\pril 17, ,Iune 15, and September 15, 19S9, and 
January 16, 1990. 

(c) Payments for fiscal year taxpayers were due on the 15th day of the fourth month, the 15th day 
of the sixth month, and the 15th day of the ninth month of the fiscal year, and the 15th day of the first 
month after the end of the fiscal year. 

(d) Periods and amounts of underpayment arc determined by ajiplying estimated tax pa\ nients to any 
underpa\ merits of earlier installments in the order in which such installments were required to be paid. 

(e) If a payment of estimated tax is applied to an underpayment for an earlier period, but the payment 
is less than the underpayment, there will be more than one period of underpayment for the earlier pe- 
riod. 

(f) The first period of underpayment for any pa\inent period will be from the day after the due date 
for the pa\'ment period to tlie date of the first applied payment. later periods of underpay ment fortiiat 
payment period will be from the day after the due date for the payment period to the date of the next 
apphed payment or April 15 of the following year, wliichever is earlier. 

(g) To determine the penalty for a payment period with more than one period of undeipayment, 
compute a penalty amount separately tor each of the periods of underpayment using tiie number of 
days in each period of underpayment, the correct underpayment balance, and the appropriate penalty 
rates. 

History Note: Statutory Authority G.S. 105-163.15; 105- 1 63. IS: 105-262; 
Eff. June I, 1990. ' 

.021 1 FARMERS AND FISHERMEN 

(a) The following special mlcs for underpay ment of estimated tax apply to farmers and fishermen: 

(1) The penalty for under]iaying 19S9 estimated tax will not apply if the return is filed and all tax 
is paid by March 1, 1^)')0. For fiscal >ear taxpayers, the penalty will not apply if the return is 
filed and tax due is paid by the first day of the third month after the end of the tax year. 

(2) An\" penalty owed for underpaying 1989 estimated tax will be determined from one pa\ment due 
date, January' 15, 1990. 

(3) The undeqiayment penalty for 1989 is computed on the difference between the amount of esti- 
mated tax paid bv the due date and the lesser of 100 percent of the tax shown on tlie 19S8 return 
or 66 2 3 of the 1989 tax. 



5:5 NORTH CAROLINA REGISTER June LI 990 403 



FINAL RULES 



(b) Even if these special rules apply to a farmer or fisherman, he will not have to pay a penalty if the 
tax due (less withholding) is less than forty dollars ($40.00) or if he had no tax liability for the prior year. 



Iliston^ \ote: Statutory Authority G.S. 105-163.15; 105- 1 63. IS: 105-262: 
Eff. June I. 1990. 



404 5:5 NORTH C.iROLISA RECISTER June 1,1990 



NORTH CAROLINA ADMINISTRA TIVE CODE CLASSIFICA TION SYSTEM 



The North Carolina Administrative Code (NCAC) has four major subdivisions of rules. Two 
of these, titles and chapters, are mandatory. The major subdivision of the NCAC is the title. 
Each major department in the North Carolina executive branch of government has been as- 
signed a title number. Titles are further broken down into chapters which shall be numerical 
in order. The other two, subchapters and sections are optional subdivisions to be used by 
agencies when appropriate. 

TITLE/MAJOR DFV ISIONS OF THE NORTH CAROLEVA ADMESISTRATFV E CODE 



ITEE 


DEPARTMENT 


EICENSESG BOARDS 


CHAPTER 


1 


Administration 


Architecture 


2 


2 


Agriculture 


Auctioneers 


4 


3 


Auditor 


Barber Examiners 


6 


4 


Economic and Community 


Certified Public Accountant Examiners 


8 




Development 


Chiropractic Examiners 


10 


5 


Correction 


General Contractors 


12 


6 


Council of State 


Cosmetic Art Examiners 


14 


7 


Cultural Resources 


Dental Examiners 


16 


8 


Elections 


Electrical Contractors 


IS 


9 


Governor 


Eoresters 


20 


10 


Human Resources 


Geologists 


21 


11 


Insurance 


Hearing Aid Dealers and Eitters 


2~> 


12 


Justice 


Landscape Architects 


26 


13 


Labor 


Landscape Contractors 


28 


14A 


Crime Control and F'ublic Safety 


\EiritaI & Eamily Therapy 


31 


1 5A 


Environment, Health, and Natural 


Medical Examiners 


32 




Resources 


Mid\vifer\' .loint Committee 


33 


16 


Public Education 


Mortuap.' Science 


34 


17 


Rc\enue 


Nursing 


36 


18 


Secretary of State 


Nursing Home Administrators 


37 


19A 


Transportation 


Occupational Therapists 


38 


20 


Treasurer 


Opticians 


40 


*21 


Occupational I iccnsing Boards 


Optometry 


42 


T> 


Administrative Procedures 


Osteopathic Examination and 


44 


22, 


Community Colleges 


Registration 




24 


Independent Agencies 


Phamiacy 


46 


25 


State Personnel 


Physical Therapy Examiners 


48 


26 


y\dministrative Hearings 


Plumbing and Heating Contractors 


50 






Podiatry Examiners 


52 






Practicing Counselors 


53 






Practicing Psychologists 


54 






Professional Engineers and I ami SiuAcyors 36 






Real Estate Commission 


58 






RetVigeration Examiners 


60 






Sanitarian Examiners 


62 






Social Work 


63 






Speech and I anguage Pathologists and 


64 






Audiologists 








Vetennap," Medical Board 


66 



Nolo: Title 21 contains the chapters of the \arious occupational licensing boards. 



5:5 NORTH CAROLINA REGISTER June I, 1990 



405 



CUMULA THE INDEX 



CUMILA THE I.\DEX 

(April 1990 - .\farch 1991) 



1990 - 1991 



Paces 



Issue 



1 - 151 1 - April 

152- 235 2 - Apnl 

236- 285 3 - May 

286- 312 4 - May 

313- 407 5 - June 



AO - Adniiiiistratiye Order 

AG - AttomcN' General's Opinions 

C - Correetion 

FR - Final Rule 

GS - General Statute 

JO - Judicial Orders or Decision 

M - Miscellaneous 

NP - Notice of Petitions 

PR - Proposed Rule 

SO - Statements of Organization 

IR - Temporar) Rule 



ACRICLLTIRE 

Plant Conservation Board. 1 PR 
Structural Pest Control Committee, 7 PR 

CRIMF CONTROL AND PUBLIC SAFETY 

State Highway Patrol, 53 PR 

ECONOMIC AND COMMLMTY DE\ ELOPMENT 

Banking Commission, 16 PR 
Commumty Assistance. 25 PR. 317 PR 
Credit Union, 317 PR 
Milk (Commission, 24 PR 

ENMRONMENT. MEALrH, AND NAIURAL RESOURCES 

Coastal Management, 136 PR, 2'-)2 PR 

F-nvironmental Manatiement, 54 PR, 193 PR 

Health Ser\ices, 190 PR 

Marine Fisheries, 63 PR 

Wildlife Resources and Water Safety, 137 PR. 206 PR. 2^3 PR, 349 PR 

FINAL DECISION I EFI ERS 

Voting Riglits Act, 241, 2S6, 316 

EFNAL Rl I.ES 

List of Rules Codilled, 143 FR, 226 FR, 302 FR 



406 



5:5 SORTH CAROLISA REGISTER June I, 1990 



CUMULA TIVE INDEX 



GOVERNOR/LT. GOVERNOR 

Executive Orders, 236, 313 

HUMAN RESOURCES 

Health Services, 152 PR, 245 PR 

Medical Assistance, 191 PR 

Mental Health, Developmental Disabilities and Substance Abuse Ser\'ices, 29 PR, 318 PR 

Social Services, 247 PR 

Water Treatment Facility Operators Board of Certification, 27 PR 

"\'outh Scr\ices, 261 PR 

rsSlRANCE 

Agent Services Division, 321 PR 
Financial E\'aluation Division, 342 PR 
Fire and Casualty Division, 335 PR 
Life: Accident and Health, 264 PR, 287 PR 

JUSTICE 

Attorney General, Office of the, 1Q2 PR, 273 PR 

LICENSENG BOARDS 

Cosmetic Art Examiners, Board of, 355 PR 
Electrical Contractors, Board of Examiners of, 356 PR 
Medical Examiners, Board of. 207 PR 
Nursing, Board of 300 PR 

PUBLIC EDUCATION 

Elementar,' and Secondary-, 141 PR, 275 PR, 351 PR 

REVENUE 

Individual Income Tax, 359 FR 
Sales and Use Tax, 213 FR 

SECRETARY OE STATE 

Securities Divison, 293 PR 

STATE PERSONNEL 

State Personnel Commission, 277 PR 

STATE TREASl RER 

Department Rules, 352 PR 

I ocal Government Commission, 352 PR 

Solid Waste Management Capital Projects Financing Agency, 354 PR 

TRANSPORTATION 

Motor Vehicles, Di\ision of 222 FR 



5:5 NORTH CAROLINA REGISTER June L 1990 407 



NORTH CAROLINA ADMINISTRATIVE CODE 

The full publication consists of 52 volumes, totaling in excess of 15,000 pages. It is supplemented monthly 
with replacement pages. A one year subscription to the full publication including supplements can be 
purchased for seven hundred and fifty dollars (S750.00). Individual volumes may also be purchased with 
supplement scnice. Renewal subscriptions for supplements to the initial publication arc available at one- 
half the new subscription price. 

PRICE LIST FOR THE SUBSCRIPTION YEAR 



\'oIume 


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1 - 52 


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1 

2 

2 

3 

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4 

5 

5 

6 

7 

8 

9 

10 

10 

10 

10 
10 
10 

10 
10 
10 
10 
10 
10 
10 
10 
10 
10 

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1 - 37 
1 - 24 
25 - 52 
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1 - 2 
3-4 

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1 -9 
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11 




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13 




14 




15 




16 




17 




18 




19 




20 




21 




22 




23 




24 




25 




26 




27 




28 






Continued 



Total 
\'<)lumc litlc Chapter Subject Subscription* Quantity Price 



29 


12 


30 


13 


31 


13 


32 


13 


33 


14A 


34 


1 5A 


35 


1 5/\ 


36 


1 5A 


37 


I5A 


38 


15A 


39 


1 5A 


40 


16 


41 


17 


42 


17 


43 


18 


44 


19A 


45 


20 


46 


21 


47 


21 


48 


21 




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49 


23 


50 


24 


51 


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52 


26 









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Justice 


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Labor 


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8- 


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Labor 


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1 - 


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Public Safety 


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11 


~r-> 


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